The Hindu Business Line : India Inc presents not so rosy a picture

Coimbatore, Nov. 17 While the Indian (growth) story is likely to remain strong where it is, an analysis of the first two quarter results in the current fiscal shows that companies have started giving a picture “which is not as rosy as some perceive (it) to be”, since the corporate earnings are falling because of strong rupee and the growth of the manufacturing sector has slowed down, according to Mr Bhagirat B. Merchant, former President, Bombay Stock Exchange Ltd (BSE).

The country is also witnessing the phenomenon of “stupid money” chasing a few scrips and whether this momentum was sustainable was a million dollar question, he said.

Speaking at an investors’ meet at Coimbatore held in connection with the inauguration of online trading facility of DJS Stock and Shares Ltd and Annamalai Capital Services (P) Ltd, he said the growth of the manufacturing sector that plays a crucial role in economic development has come down to 7-9 per cent from the earlier 13 per cent plus. If that was there, which was likely to continue, “Where are we going to be,” he asked.

Two major factors

Mr Merchant said: “We need to take into consideration two important developments – the spiralling cost of crude oil and the appreciation of Indian rupee. While the rising rupee value would make imports cheaper, this advantage was negated by the rising crude oil prices. The PSU oil companies were incurring colossal losses everyday since the government did not allow them to raise the price of petrol and diesel due to political compulsions and “no company could afford to sell” at that price at the retail level. It was not the wholesale price index but the retail price index that was relevant for the consumers and the latter was hovering around 7 to 9 per cent.”

Ms Aarati Krishnan, Chief of Research Bureau, Business Line, who inaugurated the online trading, said the Sensex has doubled in the last 18 months driven by a few Sensex stocks but a huge number of mid-cap and small-cap stocks have not participated in the rally. While the stock prices have been driven by better earnings, the PE multiples have also expanded which meant that the companies have to perform much better to “justify the current stock price”.

Mr B. Madhav Reddy, Vice-President, Multi Commodity Exchange of India Ltd, said market integration is happening after the formation of the exchange and commodities’ prices have become the same in different regions and the futures market tend to reflect the spot market in prices.

He said options are likely to be introduced in the commodities segment that would help the small traders and farmers to come on to the platform. Many indices such as rainfall, carbon, and freight are also on the anvil and an Indian Energy Exchange to deal with electricity will be formed.

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