Slowdown's for real, confirms net sales data
While the jury is still out on the extent of economic slowdown in India, sectoral data is unambiguous about the growth engine’s downward journey. Invest during inflation?
By ET Bureau |
While the jury is still out on the extent of economic slowdown in India, sectoral data is unambiguous about the growth engine���s downward journey. The trend in net sales growth of companies in leading (intermediate) sectors such as cement, hospitality, chemicals, logistics, metals and capital goods illustrates the situation.
On an aggregate basis, the net sales of companies in these sectors grew by just 19% during March 2008 quarter from a high of 40% recorded in December 2006 quarter. This was the fifth consecutive quarter of decelerating trends in the net sales growth of companies in this sector. The worst affected are companies in cement, hotels, logistics and chemical sectors.
Interestingly, these were precisely the sectors that were the first to participate in the economic and stock market boom that began in early 2003. These sectors have been gross underperformers in the stock market since early 2007. Being providers of goods and services to other companies in manufacturing and service sectors, the revenue trends of these sectors is a good barometer of the economic and industrial activity in the economy.
On an aggregate basis, the net sales of companies in these sectors grew by just 19% during March 2008 quarter from a high of 40% recorded in December 2006 quarter. This was the fifth consecutive quarter of decelerating trends in the net sales growth of companies in this sector. The worst affected are companies in cement, hotels, logistics and chemical sectors.
Interestingly, these were precisely the sectors that were the first to participate in the economic and stock market boom that began in early 2003. These sectors have been gross underperformers in the stock market since early 2007. Being providers of goods and services to other companies in manufacturing and service sectors, the revenue trends of these sectors is a good barometer of the economic and industrial activity in the economy.
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For our analysis we have only considered those companies that are part of the respective ET Indices. For instance, numbers for cement sector are the aggregate figures for companies that are part of ET Cement index.
The slowdown looks even more profound if we consider figures on trailing 4-quarter basis. Compared on this basis, revenue growth during year-ended March 2008 was slowest in the past seven quarters and around half of that recorded in March 2007 quarter.
However, the capital goods and construction sectors have exhibited some growth momentum, though there are early signs of a slowdown in these two sectors as well. On trailing four quarter basis, revenues in capital goods sector grew by a modest 14% during the year-ended March 2008 against 22% a year ago. A similar deceleration is visible in the construction sector though on a smaller scale.
However, it must be mentioned that March is usually the best quarter for firms in these sectors as most government departments and public sector undertakings try to push through new projects as financial year comes to close.
The first victim of the slowdown seems to be the cement sector.
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The revenue growth in the sector is down from a high of 50% YoY in December 2006 quarter to 16% in March 2008 quarter. As cement is an essential building material without any substitute, slowdown is a strong indicator of a slowdown in the construction activity in the economy.Even the hitherto high-flying metal sector also seems to have fallen in bad times. The net sales growth of metal companies has declined from 47% in December 2006 quarter to 20% during March 2008 quarter. Metals ��� steel, aluminium, copper or zinc ��� are key inputs in several sectors including automobiles, capital goods, consumer durables and construction, among others. A slower growth in the sector is a clear sign of impending slowdown in the economic activity in the economy.
In the services sector, both hotels and logistics providers are reporting decelerating growth. Revenue growth of leading hotel operators declined to 17% in March 2008 from over 30% till two quarters ago. As business and corporate travel accounts for bulk of the revenues for hospitality majors in India, it���s a worrying sign.
Pointing towards a slowdown in cargo availability, logistics providers grew by just 5% during March 2008 against 20% plus growth recorded by the sector till a year ago. And if trend persists, be ready to brace yourself for more bad news on the economic front as 2008 progresses.
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