We’re nearing the end of the second year of the recovery in the markets, which began in March 2009. How has it compared with the second year of the previous recovery? In the previous cycle, too, the uptrend began in March 2003; so we can say the comparable second year of the bull run then was March 2004-March 2005. The Sensex was up 16% during that period, much more than the 6.6% growth it has shown in the 12 months ending 25 March 2011.
Also See | Growth Drivers (PDF)
But that tepid performance has to do with valuations, the strength of the global recovery, the fight against inflation and a host of other factors.
Perhaps more interesting is the composition of the growth in the markets. The Bombay Stock Exchange’s (BSE) sector index for capital goods has shown a decrease of 7.5% in the past one year. During March 2004-March 2005, this index had risen 39.9%. On the other hand, while the BSE FMCG Index has gone up by 23.6% in the last 12 months, it had increased by a comparatively lower 11.5% during March 2004-March 2005.
This ties in with the macro numbers as well as evidence from the corporate financial results, which show hesitation on capital expenditure and robust consumer demand. The gross domestic product data for the December 2010 quarter show that while the growth in capital expenditure has been slowing, private consumption continues to grow at an accelerating pace.
Simply put, while it was investment demand that led growth during the second year of the last upward cycle, this time it is consumption demand, which has remained strong in spite of high inflation.
Graphic by Yogesh Kumar/Mint
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