What macro indicators are missing: the uneven revival in the initial stages is set to spread out
Those looking for a one-way trend of macro indicators
to validate their investment strategy are likely to be disappointed. Retail inflation
in September was beyond the central bank’s comfort ceiling of 6%. Industrial
production decelerated to 8% from 1.4% in August. Stagflation is considered one
of the worst types of afflictions for an economy. A stimulus can unleash
prices. Pushing up interest rates to curb the runaway consumer affordability
index hurts producers at a time they need support. What is particularly
puzzling is the mismatch of activity at factories with unlocking entering the
fourth phase in September. The first batch of corporate results indicates month
on month ramp-up in operations to reach the pre-March levels in the last month
of Q2. Yet the output of manufacturing, mining, power generation, capital goods
and consumer durables and non-durables contracted. There are two explanations.
The release of the bottled-up demand is not uniform. Spends are going towards easing
living and resuming servicing of liabilities. The other interpretation is the preoccupation
of sellers to dispose of inventory and execute pending orders. Surplus, if any,
is getting deployed in safe-haven gold, up to a historic high of Rs 55845 per
10 gm in August, to protect the downside and in the stock market, clawing back 56%
from the March bottom, in the hope of replenishing depleted reserves.
After food
and hygiene, staying connected and solvent appears to be a priority. Terrestrial
and sub-sea cable network operator Tata Communications’ 680-basis-point margin
expansion in the trailing 12 months was largely due to data traffic. Operating profit of tech solutions
providers TCS, Mindtree and Tata Elxsi kept pace with galloping revenues from operations. Market outperformance by Muthoot
Finance, with over 100% returns, and Manappurum Finance, gaining 77%, from April
till the third week of October suggested leaning on gold to bridge the liquidity
gap. Kerala-based CSB’s annualized
profit before tax surged 150% over the past year, with advances against bullion
galloping 47%. The unevenness of the recovery was pronounced in the automobile
sector. Though industry-wide buying of commercial vehicles was down nearly a
third from September 2019, Tata Motors’ passenger vehicle offtake sprinted
162%. Escorts’ agri-machinery recorded the highest-ever September sales. The partial
resumption of cash flow on gradual lifting of restrictions found its way to
lenders. Bandhan Bank’s collection efficiency was 92% in the month after the
moratorium on repaying loans ended in August. That suspended purchasing is returning
was confirmed when real estate developer Sobha’s total average realization,
without any new launches, raced past five quarters. Reaffirmation came from the
sparkling show put up by manufacturers of cement, an important measure of
economic health. ACC’s ready-mix concrete sales volumes spurted 76% and Ultratech
Cement’s pre-tax profit soared 65% as against year-ago quarter. Their robust
margins reflected the willingness of the market to absorb higher prices. Tata
Steel had to cut down on exports to meet historic domestic quarterly deliveries.
Non-elastic
usage is poised to trickle to discretionary consumption. World’s largest
producer of air-coolers Symphony launched a new range of industrial and
commercial applications in an act of optimism. Titan Company’s jewellery
division’s recovery rate was 98% in Q2 from a year ago. Some companies have hinted
of a future even brighter than the satisfying present. After reporting sequential
operating growth, Infosys guided for higher revenues and margins for the full
year. Wipro projected the momentum of IT services to continue in Q3. Apart from
forecasting scaling up in each of the remaining two quarters, HCL Technologies estimated
20%-21% more operating profit for the entire fiscal year. Even companies in struggling
sectors are offering earnings visibility. KEC International’s fresh EPC recent orders
constituted 2.5 times consolidated June2020 quarter sales. Welspun Corp’s deal
book bulged to six times standalone Q1 top line after multiple wins of Rs 1400
crore to lay pipes. Transport infrastructure player Ircon International’s contracts
ballooned to 5.6 times consolidated turnover of the first three months of FY
2021. Investors seem to have spotted the trend the headline numbers missed. Broker
IIFL Securities’ bottom line more than doubling and online platform 5Paisa
Capital’s record client acquisition in the latest quarter, boosting fees nearly
twice that a year ago, capture the upbeat mood.
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