"Most people who ask for
advice from others have already resolved to act as it pleases them."
-Khalil Gibran (Lebanese,
1883-1931)
Word for the day
Argy-bargy (n)
A vigorous discussion or
dispute.
(Source: Dictionary.com)
Malice towards
none
Does Hardik Patel has the
potential to become symbol of Gujarati Pride, the way Bal Thackeray emerged as
symbol of Marathi pride?
May have to wait a little longer for good times
The macro data released in past three days has made it imperative
that claims of witnessing green shoots made during past few months should be
revalidated.
Some inconsistencies in provisional GDP data for 1QFY16 suggest
that the 7% number may be further revised downward in due course.
The core sector growth and factory output growth data for July and
August respectively suggest that the conditions are not much different in the
current quarter also. In fact the agriculture activity may have slowed down
further due to poor monsoon.
The rise in government capital expenditure may reflect in somewhat
better construction activity. But steep slowdown in private projects could
neutralize that as well.
We may therefore need to work with a 6-7% growth assumption
henceforth rather than 7.5-8% assumed earlier.
Secondly, the PMI data for August reveals serious lack of pricing
power with manufacturers. The slowdown comes despite manufacturers making the
steepest cuts to prices since early 2009, as input costs fell for the first
time in six months.
At macro level, we may therefore see:
(a) Continued negative
print on producer price inflation in coming months.
(b) Low level of
inventories in the system may support the prices at current levels. In fact,
lower inventories may temporarily support pick up in manufacturing activity as
producers rebuild inventory positions.
(c) RBI may be under
pressure to cut policy rates further.
Some banks have shown intention to transmit the rate cuts by
lowering lending rates ahead of RBI's policy. Though a token 25bps cut may not
help much, a material cut (50-75bps) accompanied by liquidity easing measures
like SLR cut and USD buying to neutralize the rate cut impact on currency may
provide some impetus.
At micro level:
(i) We may see material
earning downgrades post 2QFY16 results, as analysts recalculate the lower
commodity price advantage for manufacturing companies. In my view, most of this
advantage may be passed on to consumer, given the sluggish demand environment.
(ii) A material fall in
real estate and equity prices from current levels may trigger a contagious
rating downgrade in corporate debt of troubled sectors, especially textile, sugar,
power, metals and other infra asset owners. The stress on financial sector may
therefore not ease in material proportion in next few quarters.
(iii) INR depreciation
beyond a certain level may also add to the debt burden of many companies which
have borrowed overseas money.
In simple words, investors may have to wait little longer for good
times.
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