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Mark to Market | Manas Chakravarty: Who says there’s a slowdown

Mark to Market | Manas Chakravarty: Who says there’s a slowdown
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First Published: Wed, May 09 2007. 12 57 AM IST
Updated: Wed, May 09 2007. 12 57 AM IST
ABN Amro India’s purchasing managers’ index (PMI), which provides a snapshot of the performance of the manufacturing sector, shows that manufacturing growth in April was the highest in three months. That’s important because the March PMI reading was the lowest in the survey’s 24-month history.
At that time, although the index showed that growth was still very strong, it did indicate a slow, but steady deceleration every month since last November. That seemed to support the view that the Reserve Bank of India’s efforts to slow demand were working.
The numbers from the index of industrial production also showed some deceleration, with the rate of rise in the manufacturing index slowing from a frenetic 17.2% in November to a high, but less sizzling rate of 12.3% by February, the latest month for which the data has been disclosed. Although, of course, it can be argued that a 12% growth rate hardly qualifies as a slowdown.
PMI for April, however, shows a higher rate of output growth, the highest growth of new orders since January, a jump in purchases by manufacturing firms and a rising backlog of unfinished work. All this points to a more rapid growth rate. The only negative came from the export orders index, which showed only moderate growth, consistent with slowing export growth at the macro level.
As for inflation, the data was mixed. While the rate of increase in input prices was the lowest in the history of the survey, output price inflation, though moderate, rose to its highest level in four months. The rise in output prices is a reflection of demand pressures and the fact that capacity utilization is very high, enabling manufacturers to exert some pricing power.
It’s too early to tell whether the growth acceleration in April will hold. If it does, it may indicate that the much-awaited slowdown is not only here, but already over.
The stock of Hindalco Industries Ltd has lost almost a quarter of its value after it announced the Novelis acquisition. But investors still fail to find value in the firm, even after the better-than- expected results for the March quarter. Compared with the December quarter, revenues were up marginally, primarily due to higher aluminium prices and increased copper production.
But far more important than the results was the company management’s forecasts. Here’s a sample of the problems ahead: “Going forward, the biggest challenge would be to maintain high levels of performance once the aluminium price at the LME (London Metal Exchange) starts moving down”; for copper, “combination of factors like cost push, reduced customs duty and strong rupee will make the current year a very challenging one. We are confident to overcome them by the steps already planned.” While there is significant improvement in copper production, Hindalco points out that there’s a shortage of copper concentrate and copper treatment, and refining charges are under pressure. In the aluminium segment, while aluminium prices are expected to be firm, alumina prices are expected to soften.
And if these issues are not convincing enough, the shadow of the Novelis Inc. acquisition continues to hang over the stock, with analysts condemning it as too expensive and leading to a dilution in earnings.
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First Published: Wed, May 09 2007. 12 57 AM IST
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