Demographic accountability - 2

Thought for the day

"When a lot of remedies are suggested for a disease, that means it can't be cured."

—Anton Chekhov (Russian, 1860-1904)

Word for the day

Astrobleme (adj)

An erosional scar on the earth's surface, produced by the impact of a cosmic body, as a meteorite or asteroid.

Malice towards none

The glee on the Congress Vice President's face these days is implying that allegation of impropriety against Shri Jay Amit Shah totally absolve Shri Robert Vadra from all allegations of impropriety!

First random thought this morning

The common rhetorical question of BJP to Congress is that what has been achieved in India in 6 decades of Congress regime. Though I am sure to which political party this credit should go, but the fact is that India has remained united for seven decades is no mean achievement. Despite prolonged violent movements in Punjab and J&K, we have not seen an iota of public support for any type of secessionist movement.

However, given the trend in Europe, it would not be prudent to take this for granted. The government must build the probability in its policy making and make effort to preempt any such move.

An Investor's Diary

Adair Turner, a former chairman of the United Kingdom's Financial Services Authority and former member of the UK's Financial Policy Committee, is Chairman of the Institute for New Economic Thinking, in his recent blog post cautioned the emerging economies for relying too much on the demographic dividend from their burgeoning population. Instead of summarizing his thought at the expense of distorting it, I would like to reproduce it verbatim.

"Across emerging economies, the benefits of a “demographic dividend” have become a familiar refrain. Politicians and business leaders alike – be it in India, Nigeria, Pakistan, or Tanzania – talk glowingly of how a fast-growing and youthful population will create huge investment opportunities and fuel rapid economic growth. But the reality is that in many emerging economies, rapid population growth poses a major threat to development, and technological progress will make that threat even more severe.

For starters, the term “demographic dividend” is being seriously misused. The term was originally used to describe a transition in which countries enjoyed both a one-off increase in the working age population and a significant fall in fertility. That combination produces a high ratio of workers to dependents – both retirees and children – making it easier for high savings to support sufficient investment to drive rapid growth in capital stock.

Rapidly falling fertility, meanwhile, ensures that the next generation inherits a large capital stock per capita: and small family size makes it easier to afford high private or public education spending per child, leading to rapid improvements in workforce skills. South Korea, China, and some other East Asian countries have benefited hugely from such a demographic dividend over the last 40 years.

But without a rapid fall in fertility rates, there is no dividend. If fertility remains high, a low ratio of retirees to workers is offset by a high child dependency ratio, making it difficult to support high education spending per child. And if each new cohort of workers is much larger than the one before, growth in per capita capital stock – whether in infrastructure or plant and equipment – is held back. Rapidly growing working-age populations also make it impossible to create jobs fast enough to prevent widespread underemployment.

This is the bind in which much of Sub-Saharan Africa is still stuck. With moderate GDP growth rates (averaging 4.6% over the last decade) offset by 2.7% annual population growth, per capita income has been growing at less than 2% per year, versus the 7% rate which China achieves. At this rate of progress, Africa will not attain today’s advanced-economy living standards until the mid-2100s.

Pakistan faces a slightly less severe – but still significant – challenge. India’s demography varies by region: while fertility rates are now at or below two in economically dynamic states such as Maharashtra and Gujarat, the big northern states of Bihar and Uttar Pradesh are still facing severe demographic headwinds.

Demographic accountability

Thought for the day

"Any idiot can face a crisis - it's day to day living that wears you out."

—Anton Chekhov (Russian, 1860-1904)

Word for the day

Esprit de corps (n)

A sense of unity and of common interests and responsibilities, as developed among a group of persons closely associated in a task, cause, enterprise, etc.

Malice towards none

How do we identify secular firecrackers?

As per Chetan Bhagat the firecrackers burnt on Diwali are Hindu and those burnt on Eid are Muslim!

First random thought this morning

If we truly believe in the legacy of Ram, Krushna, Bhoj, Vikramditya, Chankya, et. al., we must accept that the King (head of government, chief administrator or Pradhan Sevak, if you like) should be beyond any suspicion. Innocent till proven guilty is applicable to the ordinary people not Kings.

However, to punish the people who may chose to level false and baseless allegations against the King, we may have laws so stringent that no one would dare do that.

Demographic accountability

I have been writing repeatedly about the demographic accountability of India. Unfortunately, while the authorities are quick in claiming demographic dividend of the burgeoning population, the focus on demographic accountability is clearly lacking.

Millions of reams have been used to write and publish about the demographic characteristics of India. Many stories, themes and strategies have been built around the young demographic profile of 1.25bn Indians. Almost all these stories and strategies recognize the young Indian as a great opportunity - "Demographic dividend" for the Indian economy. I have however not come across any presentation that classifies this demographic profile as the solemn accountability and responsibility of India to the world.

The global community has always valued the resource rich nations and expected them to behave in a responsible manner to preserve the global order. The capital rich western world has been expected to help the poor and starved of the world. The world looked forward to them to fund technological advancement, preservation of cultural heritage, assisting global growth and development. Even after taking full cognizance of the allegations of imperialism and suppression, I believe that financially rich communities have worked for the betterment of human life by funding technological innovation, life science research & development, productivity enhancement, and development assistance to the economically lagging world.

Similarly, nations rich in natural resources like minerals etc. have been expected to prospect and exploit these resources in optimum manner to assist the sustenance and growth of the global economy.

My point is that now since India possesses the largest pool of prospective workers for the world, should it not be responsibility of government to prospect, grow, and develop this resource for benefit of global community!

This is even more pertinent in the context of the current global financial crisis. In places like Europe and Japan the root cause of the crisis could be traced to the aging demographic profile. China is also like to join the club in a decade or so. Under the circumstances it is the responsibility of India to provide educated, skilled and trained workforce to the global economy.

A number of research papers and surveys have shown that (a) Child and mother nutrition level in India is sub-standard consequently child mortality rates are poor; (b) higher and professional education standards are extremely poor consequently a large number of Indian graduates are unemployable even in routine jobs; (c) There is acute shortage of competent scientists to scale up research and development (R&T) activities to make Indian businesses competitive at global stage.

"Skill India" and "Make in India" are noble ideas for human resource development. But we need to make sure that these do not end up prospecting and developing only blue collar low skilled workers. In that case India will not only fail in its responsibility to global community but also slither back into the lower orbit of economic development like in 1950-80 ....to continue

Incremental vs. transformative

Thought for the day

"Those who can make you believe absurdities can make you commit atrocities."

—Voltaire (French 1694-1778)

Word for the day

Cucurbit (n)

Any plant of the gourd family.

Malice towards none

Mispriced aspirations are quintessentially designed to meet undesirable denouncement.

First random thought this morning

Pirated CDs are sold audaciously in all markets; sex workers and quack sexologists solicit business blatantly by advertizing in national dailies; prohibited alcohol products are advertized in the garb of soda water, playing cards, music CDs, crockery and what not; people drive on the wrong side even on expressways as highway police personnel rub tobacco on their palms.

But no one should dare raise issues like these, for the fear of being termed Shalya.

Incremental vs. transformative

Recently, the prime minister aggressively hit out at his detractors and critics. Visibly perturbed and anguished, he bombarded the audience (worldwide) with tons of economic data, claiming that India has achieved much more in past three years of rule under him, than probably it could achieve in past seven decades. Palpably, he had no doubts whatsoever that his government has achieved much more than what Dr. Manmohan Singh led UPA had achieved in 10years of rule.

Obviously, his supporters who were on back foot since past few weeks, especially after Yashwant Sinha's outburst, came back strongly and #ModiTransformedIndia started trending on social media.

Since, I based my decisions on the premise of "business as usual" not relying on tall promises, I have absolutely no problems with the economic performance of the incumbent government. Moreover, I do not give much credence to economic data quoted selectively by politicians to suit their convenience. As such, I have no comment to offer on PM's speech and claims made therein. Nevertheless, I must share three observations.

Firstly, the whole endeavor of Prime Minister was on establishing how his government is better than the previous administration. In that also, he did only highlight the data like FDI, roads completed, CAD, inflation, electronic manufacturing etc., that has seen improvement in past 3yrs. He may find it little tough to explain, in my view, how come this improvement is not part of a long drawn process that started a long back in 1991, accelerated in 1998 and further boosted during 2003-2007 and well greased in 2013.

Even a cursory study will show that the economic growth in India is business as usual and no transformative change (conceived and implemented by incumbent government) has taken place in past three years. If only, some disruptions, like GST, have taken place, which again were due and anticipated since long.

Secondly, it is unfair for him to benchmark his performance against an establishment which he never forgets to rubbish as paralyzed, enslaved to a family and regressive. He may want to evaluate his performance against his promises or rather the aspirations he has raised. I see the aspirations which were mostly mispriced, correcting to mean, if I may use stock market jargon.

Thirdly, I refuse to believe that the incumbent government has introduced changes, a variant of which we have not seen before (including alleged demonetization and whip on non-compliant citizens) or which has been conceived and implemented ab initio by the incumbent administration. Green Revolution (1960s), Joining GAAT and WTO (1947 & 1995), Industrial Liberalization (1991), Nuclear Tests (1998), and dismantling of government monopoly over energy, roads, ports, telecom, coal, etc, (1998-2004) were some transformative changes to my mind. Providing LPG connection to BPL families and distributing LED bulbs may be transformative for beneficiary households, but not for the economy or country by any stretch of imagination. If that is claimed to be so, then MNREGA and RTE were much more powerful and far reaching changes.

Disclosure: I am a BJP voter since 1989, and will remain so in 2019 too.

Enigma of inflation

Thought for the day

"It is difficult to free fools from the chains they revere."

—Voltaire (French 1694-1778)

Word for the day

Concatenation (n)

A series of interconnected or interdependent things or events.

Malice towards none

Do the TV channels daily broadcasting sponsored programs of quacks and suspicious preachers have any moral right to speak against superstitions and malpractices prevalent in the society? Also do the newspapers carrying prostitution advertisement under garb of friendship clubs, massage services etc., should be heard on the matter of women exploitation?

First random thought this morning

Is it a mere coincidence or the current administration (both at center and state level) is making serious attempts to correct a number of distortions in the Islamic practices especially relating to mexploitation of Muslim women, like Triple Talaq, NIkah Halala, Nikah Mutah, etc.?

Regardless of anything this is a welcome development and should be appreciated by all.

Making it clear that establishment will not seek to exploit the issue for electoral advantage, may minimize the resistance from Muslim male too.

Enigma of inflation

For a common man like me on the street, who is blissfully ignorant of the principles of economics and public finances, inflation is nothing but an enigma. The rising prices do hit him hard, but that also lead to rise in his nominal income and hence social stature. Higher nominal interest rate on his savings, higher notional value of his house & jewellery; and higher rental for the spare room on the top floor provides him some psychological comfort, at the least.

As I see it, for a common man, inflation is more of an income inequality issue than anything else. For example consider the following:

(a)   A farmer should gain maximum from the food inflation. Given that over 60% population is engaged in the farming and related activities, theoretically consistently high food inflation should result in transfer of wealth from non-farm sector to the farm sector. But this has not been the case in any of the high food inflation episodes in past seven decades. The gap between rural and non-rural income and wealth has been consistently widening.

(b)   The food inflation should also benefit the urban middle class. The expense on food for a typical Indian middle class family is not more than 40% and a typical middle class household saves 25% of his income. If food inflation is 10%, a 5% rise in nominal income should be sufficient to offset that.

Besides, they would need sufficient rise in nominal income and asset prices and interest rates to offset the erosion in real value of their savings. This perhaps has not happened in past many decades, implying that nominal rise in asset prices and interest rates has not been consistent with the general rise in price levels. The wealth is thus consistently getting transferred from savers to borrowers.

(c)    One could argue that transfer of wealth from farmer and urban middle classes to trader and indebted industrialist is a function of risk they take.

But if we consider the history of NPA cycles, and exploits by moneylenders this argument gets weaker. Large borrowers have been consistently transferring the risk to public sector banks, and hence the common public, through frequent defaults. The money lenders in informal sector have been fairly successful in exploiting the household and farmer borrowers, not allowing any benefit of inflation to them.

The equation in energy inflation (mostly imported or arising due to state inefficiency) and core inflation is different, but impact is mostly the same.

In my view, therefore inflation has been a medium of wealth transfer from common man to the rich. The current raging debate over rise in prices of food therefore has to be seem from this angle also.

I have been highlighting that at the current productivity level farming in India is mostly an unremunerative business. A multifold rise in either farm productivity or prices can only correct this situation.

I would seek readers' view on this problem, before I take up it in some detail.

Whose history is it anyways - 4

Thought for the day

"The art of medicine consists in amusing the patient while nature cures the disease."

—Voltaire (French 1694-1778)

Word for the day

Oceanicity (n)

The degree to which the climate of a place is influenced by the sea.

Malice towards none

Could Trump do to Kim what Bush Jr. did to Saddam?

First random thought this morning

It is surprising to see that investors who were bullish on Indian equities due to "strong macro" fundamentals, seem even more bullish at the prospects of fiscal profligacy in the form of fiscal stimulus (now that government has finally admitted to the deterioration in economic health of the country). The current account has already joined the weak spots of the economy category.

Despite a "no show" for four long years (FY13-FY17), there are many who still feel earnings will present a gala show this year and the next. May the wolf come soon, while villagers are still listening to the shepherd boy!

Whose history is it anyways - 4        

I have received a large amount of hate mail for my views expressed in past three days. I am grateful to all those who took pain to write. This fully corroborates what I have been observing during my travels and trying to highlight here.

I do not want to engage in any political debate. I am certainly not concerned about the knowledge of our politicians about history and economics of India. I also do not wish to sermonize anyone or judge any party or organization by their recent activities, iterations, and ideologies, or lack of it for that matter.

I would like to limit myself to my economic interests and in my view, the rising insolence and cynicism in a society can never be a good news for its economy.

Many people would agree with me on my assessment that the incumbent government has introduced a fair degree of unpredictability in policy making in the country. The policy paralysis that was widely believed to be the hallmark mark of the previous government has been replaced by the elements of unpredictability and radicalism. Though not worrisome per se, this tendency has unwittingly put the administration and the people impacted by the fiscal policies on path of confrontation. Consequently—

(a)   Suspicious of future policy direction; unconvinced of government promises, and uncertain about the stability of current policy regime - people are deferring both investment and discretionary consumption decisions. One may argue that the growth in sales of automobile and white goods is not indicating much slowdown in discretionary consumption demand. To this I must reply that the growth trajectory of it has certainly moved down and lower return on recent capex (and any incremental capex) may make it conspicuous.

(b)   Confidence in broader India growth story supported well by global enthusiasm, juxtaposed to skepticism raised by unpredictability & instability of policy and general social distress, is creating a deal of cognitive dissonance impacting the decision making as well as disposition of businesses.

(c)    The economy faces a potential threat of getting pushed into a vicious cycle of lower growth-lower employment-lower income-lower consumption-lower investment-lower growth, if immediate steps are not taken to improve business and consumer confidence.

The dilemma however would be that it may challenge the fiscal discipline, which had been one of the most important rallying point for investors' confidence. An unmindful fiscal stimulus at this stage could disturb the inflation-growth equilibrium by pushing prices and rates higher.

I shall therefore continue to maintain an extremely cautious stance on Indian equities for next 12-18months. At the risk of facing ridicule from my peers, I would go underweight on NBFCs, capital goods, and lower middle class consumption, in particular.

Whose history is it anyways - 3

Thought for the day

"History should be written as philosophy."

—Voltaire (French 1694-1778)

Word for the day

Clandestine (adj)

Characterized by, done in, or executed with secrecy or concealment, especially for purposes of subversion or deception; private or surreptitious:

Malice towards none

Should we assume that Jadeja is now a "test only" player!!

First random thought this morning

It is commonly said that if you want to understand the immediate concerns of a society, you should watch most popular cinema and TV news. Going by this adage, I find the following as most pressing problems of Indian society this morning:

Rohingya refugees; Honeypreet Singh; Safety of school kids; ceasefire violation by Pak; Petrol prices; erectile dysfunction; open defecation.

Whose history is it anyways - 3

When a politician in power says that Mughals were plunderers who looted India, it is not just the misplaced perception manifesting itself under the garb of nationalism. It is much more than that.

It is frustration over steep degeneration of traditional Indian culture and values.

Any politician or social worker who has at least one of his feet on ground fully realizes that the data revolution created through advancements in the telecommunication sector is being used significantly for frivolities (mostly gossip and pornography) besides of course enhancing productivity.

It is a deep running desire to restore ancient Vedic culture in order to establish India as global superpower - economic, cultural, and strategic.

The unfortunate part is that those desiring restoration of Vedic culture suffer from ignorance and deep prejudices. They desire to downsize local Muslim populace, while keeping all the discrepancies (for lack of a proper word) that crept in the Vedic traditions during past 1200years of Islamic influence. Unequal place for women is widely noted as one such discrepancy.

The CM and Deputy CM of the largest state in the country, which has benefitted the most from the Mughal rule, saying that Mughals plundered India, raises serious questions. These assertions diminish our faith in the capability of the government to implement a sustainable development agenda. These also make us skeptical about law and order conditions.

For records, as per my understanding of history, all Mughal rulers after Humayun, were born and brought up in India. They lived, married, ruled and died in India. Almost all of them were of mixed race (Mughal and Rajput). After Maurayans, Akbar was the first ruler to unify India as a political entity. During 1500-1700AD, when Mughals ruled India, India's share of global GDP rose from 22% to over 24%. The first industrial revolution in India happened during Mughal rule, when Indian textile, leather and shipping industry flourished to become the leader in the world. Mughals invested heavily in infrastructure especially roads and unbranization. Our traders (mostly Hindus), riding on Mughal ships and horses travelled to the global markets, sold their produce for gold. That is how India became the Bird of Gold, given that we were never a significant producer of gold.

Influenced by the dialogues of 1960 Hindi movie Mughal-E-Azam, some leaders have tried to connect Mughal rulers of India with Turco-Mongol invaders Ghenghis Khan and Timur. I can guarantee it would take them at least 6months, if not more, to establish connection between Ghenghis Khan and Babur (who laid the foundation of Mughal rule in India), without using the internet.

My travels across the country in past three decades have told me that India is changing fast, but not necessarily in the direction many of us would desire. Not focusing on the direction of change could nullify the impact of the change itself, in my view......to continue

Whose history is it anyways - 2

Thought for the day

"Who serves his country well has no need of ancestors."

—Voltaire (French 1694-1778)

Word for the day

Masscult (n)

The forms of culture, as music, drama, and literature, as selected, interpreted, and popularized by the mass media for dissemination to the widest possible audience.

Malice towards none

Legendary Khushwant Singh loved to use the word Ch****a in his literary works.

Anyone coming from Cow belt would wonder what's in it to get offended about!

First random thought this morning

Mother Narmada had been particularly kind to our prime minister Shri Narendra Modi.

Her waters played a large role in acceleration of Gujarat growth in past decade or so. The double digit agriculture growth was not possible without her water.

The wealth effect created by the appreciation in land value and consequent construction boom also added materially to the world famous Gujarat story.

Whose history is it anyways - 2

Not long ago, history used to be mostly an academic subject. The educated elite wrote, study, discussed, debated, formed, and altered history as per their perception and affiliations. Their perceptions were perhaps deeply influenced by the political narrative and economic concerns of the times.

The common people were however mostly concerned with their cultural traditions. These traditions passed through generations and generally regarded as history. Popular art forms, like films, theater, drama etc. also had significant influence on the common peoples' perception about history.

For example, 1960 Hindi Movie Mughal-e-Azam is an indelible impression of Mughal history in common peoples' imagination. Anarkali, which historian still debate to be a totally fictitious character, lives in peoples' memory as a historical symbol of love and sacrifice.

As such, the history as taught or studied in schools and universities had little meaning for common people.

In past couple of decades, I have observed a gradual change in this paradigm. An intense struggle is taking place between the history and the cultural traditions as practiced by the common people in the country.

There is a conspicuous political endeavor to overwrite academic history books with traditional and cultural beliefs. The argument is that these history books are deeply influenced (read distorted) by the imperialist British academia who had interest in destroying rich Indian legacy; and in post independence era by left leaning elite who find traditional cultural beliefs regressive and unfounded.

On the other hand the cultural traditions have also shown a tendency of loosening roots with rising urbanization, labor migration and dissipation of cultural ambience (rivers, animals, trees, temple, priest, forest, time, faith, folklores passed orally, family, austerity, etc.) The younger people who are not rooted properly in their cultural traditions are commonly seen adhering to frivolities, ignoring the core ideas deliberately (for practical reasons) or ignorantly (for the lack of proper guidance and inheritance of culture).

This dissipation of traditional Indian cultures is allowing the politicians to manipulate people into believing that alteration of history books would restore their dissipating traditional cultures and thus reinforce their loosening roots.

I do not know, if this is the right approach. May be it is. Or maybe it is not. Only time could tell this. I am also skeptical about giving this political endeavor the garb of nationalism and patriotism.

But what I am sure about is that the process is introducing some serious discrepancies in the Indian society. The generally affable and compassionate populace appears somewhat condescending.

The friction in the society is rising as the grease of traditional beliefs (tolerance, hospitality, acceptance) dries up. ...to continue

Whose history is it anyways!

Thought for the day

"The wise man does not rest by the roadside inns."

—Swami Sivananda (Indian, 1887-1963)

Word for the day

Gramarye (n)

Occult learning; magic

Malice towards none

PM Modi invited his friend Shinzo Abe directly to Ahmedabad, to keep him away from RaGa's charm!!

First random thought this morning

"Human nature will not change. In any future great national trial, compared with the men of this, we shall have as weak and as strong, as silly and as wise, as bad and as good. Let us therefore study the incidents in this as philosophy to learn wisdom from and none of them as wrongs to be avenged."

Abraham Lincoln (in the context of The American Civil War of 1861-1865)

Whose history is it anyways!

A couple of days ago, the deputy CM of UP Shri Dinesh Sharma reportedly emphasized that Mughal emperors were not our ancestors but looters and the Uttar Pradesh government would change the syllabus accordingly to reflect this fact.

"Mughal rulers were not our ancestors but looters. We consider Mughal rulers who did wrong acts as looters. Those who have done good work, we praise. Babar and Aurangzeb were looters. We do not oppose Bahadur Shah Zafar as he extended support to Mangal Pandey," Sharma told reporters here.

He reportedly said the government planned to bring "necessary changes" in the school syllabus. "If Akbar had done any good work, it will remain in pages of history. It will be historians who will decide what place Akbar gets," he said.

"A culture where a son kills his father for the throne or the hands of Taj Mahal builder are chopped off cannot be our culture. Our culture honours artistes and scientists. Dr APJ Abdul Kalam is credited for the successful nuclear test, and we honored him."

As per media reports, the UP CM Yogi Adityanath had also stated in May that Akbar, Aurangzeb and Babar were invaders and that the problems of the country would disappear after the truth is accepted. He had in the same event also called Maharana Pratap, Guru Gobind Singh and Chhatrapati Shivaji role models.

Recently, Maharashtra state board had removed a chapter on the Mughals from its class VII history books.

These recent assertions of BJP leaders have been mostly seen from the prisms of secularism vs. communalism, bigotry vs. nationalism, majoritism vs. inclusiveness.

The critics have highlighted this as a dangerous trend and attack on the very core of the pluralistic and diverse Indian society. In their view, this could damage the social fabric of the country beyond repair thus endangering the integrity of the country itself.

The supporters are terming it as renaissance of sorts, whereby all malefic distortions, digressions and misconception created by the left leaning elite about great Indian history would be corrected, ending the whole debate over secular vs. communal divide and great Aryan invasion theory. In their view, these corrections should pave the way for holistic progress of the country.

In my view, the debate suffers from myopia aggravated by deep prejudices, insecurities and complexes. Hence, I find this debate at political level totally frivolous and avoidable.

Usually, I would not bother about issues which in my view are rather frivolous to the present day socio-economic context. But given the intensity of the debate and potential economic fall outs that it could have, I need to review my investment strategy in this light....to continue

...and the macro data

Thought for the day

"That which does not kill us makes us stronger."

—Friedrich Nietzsche (German, 1844-1900)

Word for the day

Ruth (n)

Pity or compassion

Malice towards none

Dhirendra Brahmachari

Chandraswami

....

....

Asaram

Gurmeet Ram Rahim!

 

First random thought this morning

In past seven decades there have been numerous cases of impropriety, criminality and immorality by the people in religious robes enjoying immense trust of people, common and elite.

Why then is it so that each such instance is managed separately and not as a trend?

Handling this malaise as a trend, would mean taking preventive steps including regular surveillance over security and financial compliance matters.

...and the macro data

The earning season for 1QFY18 is almost over. The consensus is that the outcome has not been encouraging from whatever point you view it.

As per the Morgan Stanley's recent note in the quarter for the broad market (2629 companies) the net profit fell 11% YoY and EBITDA margins contracted 194bp YoY. The aggregate revenue grew by 9% YoY, mostly led by the commodity linked sectors (energy, materials and utilities) and industrials. For Sensex companies revenue and net profit growth of 5% YoY and -6% YoY, respectively. EBITDA margin contracted by 177bp YoY.

As per the report margin compression was conspicuous across sectors with healthcare and consumer discretionary leading the charge. The 11% fall in profit was led by telecoms and consumer discretionary.

The report finds that Financials, Utilities, Technology and Telecoms sector companies did not report impact of GST on their earnings either in their earnings release or the management commentary. Companies in the materials, consumer discretionary and consumer staple sectors reported impact due to channel destocking and dealer incentivization.

As per the consensus estimates, presently the market seems to be expecting 11% profit growth for the full year FY18 (Sensex FY18 EPS of Rs1600 vs 1448 in FY17) and a CAGR of 15% over FY17-FY19 (Sensex FY19 EPS of rs1928 vs. 1448 of FY17).

The data available so far for 2QFY18 is not encouraging either. Which means, the earnings estimates may see further downgrades.

For example, as per the latest Economic Indicator Update of Goldman Sachs, the preliminary July reading of their India Current Activity Indicator (CAI) suggests that growth moderated further to 6.8% qoq ann. from 8.5% in June, suggesting a deceleration in activity (GS India CAI is calculated on a 3month/3month annualized basis).

As per the update, most of the indicators such as two-wheeler sales, car sales, power demand, manufacturing and services PMIs and commercial vehicle sales witnessed slower growth in the three months to July compared to June.

Rural economy indicators like agriculture loans, tractor sales and agriculture exports remained laggards. GS's separate urban and rural economy CAIs indicate that the urban economy grew by 7.5% qoq ann. from 8.3% in June, while rural economic growth fell sharply to 5.1% qoq ann. vs. 9.5% in June. Excluding strong two-wheeler sales most other rural indicators continue to register tepid growth of 4%-5%.

Credit growth continues to remain weak led by subdued credit demand conditions.

The slowdown in economic activity has come on the back of inflation and INR/USD bottoming, and tightening of monetary policy easing corridor.

The markets have overlooked tepid earnings growth due to stronger macro outlook. The point is whether markets are prepared for a macro shock!