The Hindu Business Line : Figuring out the trends

It is that time of the year when die-hard investors are glued to business channels or are poring over the fine-print of company advertisements. That should come as no surprise, considering that we are bang in the middle of another hectic earnings season. Out come pens and calculators, as market watchers buckle down to figure out growth trends in sales, calculate operating margins and determine the earnings multiple at which their stock is trading at. Needless to add, any comments by the management on a ``blink-and-you'll-miss-an-interview'' kind of television channels that abound these days are carefully dissected for any nuggets they might provide on future growth prospects.

So, does this mean that investors will have to routinely wait for earnings announcements to figure out how companies they hold have fared? Not really. In the case of certain sectors such as cement, automobiles and telecom, monthly performance data are available, which should serve as a leading indicator on how the earnings card is likely to pan out. The IIP (Index of Industrial Production) numbers — available monthly, albeit with two-month lag — captures data points of key sectors, especially manufacturing, which should again come in handy. Accomplished number crunchers in the analyst community quickly impound the impact of these data into their financial models and revise estimates accordingly. But for those of us who do not exactly possess such sublime skills with a spreadsheet, just keeping track of these monthly figures may serve as a reasonably good predictive indicator.

Cement dispatches

If the infrastructure and construction sectors are hailed as the leaders of the bull charge over the past three years, the industry that will walk away with the award for the best supporting role would undoubtedly be cement. Stocks from the sector have posted manifold gains, driven by a combination of rising volumes and escalating prices. It is precisely the robustness in these despatches that would have been captured by the monthly numbers. While stocks across-the-board have moved up sharply, Shree Cements and India Cements have turned out to be multi-baggers, on the heels of solid volume growth.

It is also important to look at growth in the context of what was achieved last year, rather than in isolation. The December numbers, for instance, may appear modest, but when seen in the context of a scorching pace of growth in the same month of 2005, the picture is attractive.

Auto drivers

Another sector where exhaustive information is made available on a monthly basis is automobiles. Data on production, domestic sales and export sales are provided across a range of automobiles (two-wheelers, three-wheelers and four-wheelers, which include passenger cars, light and heavy commercial vehicles).

The strength seen in the numbers of Maruti, for example, has been manifest in investor optimism towards the stock.

Also, a solid trend in the sales numbers can also be expected to have a positive rub-off on two other sectors that depend on autos for demand — tyres and auto components.

The telecom buzz

Details on monthly net adds across operators and circles are available in a statistical handout provided by the Cellular Operators Association of India (www.coai.in) and the Association of Unified Telecom Service Providers (www.auspi.in) . If the numbers are any indication, suffice it to say that the mobile buzz in India just got louder. Bharti, which has had a spectacular run of net additions for the past several months, has also seen its stock acquire a load of sizzle. Ditto with Reliance Communications, which has proved to be equally adept at getting customers on to its bandwagon.

Other indicators

The IIP bears a close watch, as it outlines growth across the mining, manufacturing and electricity sectors. Though the data come in with a two-month lag, the IIP enables one to get a flavour of manufacturing growth across a clutch of products. However, as the latest month numbers are calculated on the basis of quick estimates, they are subject to revision subsequently. Comprehensive monthly new premium collection numbers are also available in the insurance sector across the life and non-life segments. Over the medium term, as companies from the insurance space go public, the data would serve as one of the key tools in making an investment decision.

broad market pointers

Sieving through industry-specific numbers is all fine, but a pivotal number is the amount of money pumped into the markets by foreign institutional investors and mutual funds. Over the past few years, the Indian market has seen quite a bit of liquidity sloshing around, thanks to these two investor groups. While the SEBI site has daily details on FII flows, the Web site of the Association of Mutual Funds of India provides net inflows into funds on a monthly basis. If you tot up the numbers and it adds to a sizeable packet, figuring out where the markets would head would be a no-brainer.

So, the next time you see a handout with a swathe of monthly stats, restrain the impulse to dismiss it. Subject it to a close examination, instead. The payoff could be well worth your time.

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