For past many years, it has become a tradition for popular market participants (brokers, fund managers, large investors, analysts etc.) to don finest attires and appear on special Diwali shows hosted by various TV channels to announce their prophecies for the traditional Indian New Year. In the spirit of the festivals of light, they enthusiastically speak about their outlook about the economy, financial markets, and investment opportunities.
In earlier years, these prophecies were taken seriously by the
audience, mostly household investors. However, based on my interaction with
several people from the targeted audience, I feel, now days most people listen
to the experts for validating their own positioning rather than for guidance.
Whether in consonance of their positioning or otherwise, these prophecies are
drowned in the noise of firecrackers on Diwali night itself.
However given the mobility restrictions and popularization of
digital media due to Covid-19 this year, most experts have presented their
views from their homes (instead of TV studios) rather early. Therefore the
audience has got 4-5 days, against the usual 2 days, to digest the expert views
and react to these, even though there is no change in these views for past
15years.
Besides, the experts draped in fine silk Kurtas spreading the
message of positivity and hope, another thing that has dominated the financial
media in past one week is the state of automobile sector in the country.
First, the CEO & MD of Bajaj Auto Limited, rattled the
markets with his rather despondent commentary about the state of economy in
general and the state of automobile industry in particular. He categorically
stated that the retail sales this Navratri have been disappointing this year,
and even the present level of sub optimal demand is not sustainable after the
accumulated demand post “unlocking” is met.
The rival Hero Honda management however calmed the ruffled
feathers, presenting a buoyant picture saying that demand has remained robust
during the festival season and is likely to sustain in coming months.
The management of the commercial vehicle major Ashok Leyland
appeared confident that demand shall pick up steadily from hereon. Both the
tractor majors, M&M and Escorts, also continue to show robust growth and
margins.
One of the large non banking lenders, Mahindra & Mahindra
Financial Services, recently said that the market for cars is limited by supply
and not demand. They told analysts that against 39000 cars in September, they
financed 50000 cars in October.
The Federation of Automobile Dealers’ Associations (FADA), in a
press release issued on Monday, advised caution for OEMs and dealers. The apex
body of auto dealers categorically stated that “Dealer Inventory for both 2W
and PV are at its newest highs in this Financial Year. FADA requests all OEMs
with a special request to 2W OEMs to assess the on-ground inventory level and
curb production accordingly.” The near term outlook of FADA, as stated in the
said press release, is extremely cautious. It reads as follows:
“As we enter the last leg of festivals and with Covid getting
into its 3rd wave in many cities, there is a sense of cautiousness amongst customers.
Due to the lockdown announced in few European Countries, procurement of spares
will also be a cause of hinderance for smooth supply of vehicles in Indian
markets. This will create a supply and demand mismatch thus affecting the
passenger vehicle sales.
FADA once again cautions both OEMs and Dealers to keep a check
on vehicle inventory as post festivals, demand may remain subdued. Since
Inventory levels are at its highest during this Financial Year, it may impact
Dealers financial health thus leading closures and job losses.”
In my view, the divergence of views in Auto sector, aptly
reflects the state of overall economy as well. At this point in time it is
extremely difficult to make a correct assessment of the state of Indian
economy.
The general view that rural economy is resilient to the slow
down while the urban economy continue to struggle may not be relevant for one
year perspective. The fiscal challenges of the government ought to eventually
reflect on the support extended to the rural sector also. But as I said, it is
very complex at this point in time. Making a prophecy about the economy and
market for next 12 months requires a certain degree of both audacity and
apathy. Unfortunately, I have none.
