'The results certainly show it is, but infrastructure and people shortages don't make for an uncontrolled bull run'.
Nilesh Shah, Chief Investment Officer, Prudential ICICI AMC
If India wants to become a strong nation, it needs to think like one, and that includes recognising our strengths. Our economy's expected to grow at over 6 per cent according to most estimates, and that's a figure double the global average.
If the economy's doing well, our companies are performing just as well. Third quarter sales grew by 28 per cent, EBIDTA (earnings before interest, taxes, depreciation and amortisation) by 23 per cent and PAT (profit after tax) by 34 per cent for 54 companies that together account for 59 per cent of today's market capitalisation.
What makes this all the more creditable is that this has been achieved in the face of high inflation, rising commodity prices, lower protection and higher tax payouts.
Few countries have delivered results such as these. It is true that margins have come down by around 2 per cent in the third quarter, but that is only to be expected since in a global economy India Inc cannot have higher margins than those in other parts of the globe.
While this will benefit Indian consumers, India Inc will have to look at new ways to make profits, through volume growth as well as by finding newer markets and through productivity gains.
All this has been achieved by painful restructuring over the past decade and the third quarter results show most corporates (including those whose results were below expectations) are on the right track.
Technology companies are dealing with the rising rupee and higher salaries by doing higher value-added work as well as offshoring their work.
Pharma firms are moving away from generics to value-added research. Our textile firms are looking at doing very well with the removal of quotas, and auto component firms are even acquiring companies overseas and becoming suppliers of first choice.
Our banks have achieved non-performing asset levels comparable with the best in the developed markets.
Venture capitalists are looking for opportunities to invest in India. Investment conferences by broking houses are getting wholesome responses.
Indeed, foreigners visiting India in such large numbers that there is a shortage of hotel rooms!
After all this who can argue India Inc is not shining?
The superb Q3 show doesn't mean the future is completely rosy. There are problems of infrastructure, fiscal deficit, and many other things. But a few black spots don't take the shine away from moon.
The comfort that India is shining comes from the fact that companies across various sectors are finding solutions rather than blaming the government.
If the roads are bad, use a helicopter to fetch the client from airport to the plant site. If the electricity is not available, go for in-house power plants.
If the railway track is not there, lay it yourself.
Instead of complaining, India Inc has started solving problems on its own.
This gives the comfort that finally India has begun to shine and will probably shine for longer period of time.
India has all the ingredients available to make a permanent shine. It has low cost and intelligent human capital, plenty of natural resources and a world class entrepreneurial capability.
Finance is available on easy terms and the consumption cycle has just begun. There will be minor irritants like the infrastructure and policy direction.
Most analyst expect inflation, interest rates, competition and cyclical factors to put pressure on margins in fiscal year 2006 for India Inc. But at the same time, they also estimate FY 2006 earnings will grow between 15 and 20 per cent.
In a world where growth is hard to come by, a 15 per cent growth should be at a premium valuation. The ultimate recognition that India is shining comes from the fact that for the first time India is invited to attend the G-7 meeting.
(Views expressed are personal)
Subir Gokarn, Chief Economist, CRISIL
The economic recovery is doing extremely well, going by the latest GDP numbers. Growth during 2004-05 is estimated to be close to 7 per cent; this on the back of year in which it was 8.5 per cent.
Manufacturing is estimated to grow by 8.9 per cent, accelerating over already steady performances of over 6 per cent in the previous two years.
And, services continue to clock around 9 per cent; 50 per cent of our economy, then, is performing at par with China. In a year in which the government changed, we had a bad monsoon and the price of oil shot through the roof for a while, the economy has come through relatively unscathed.
We are, in short, politics-proof, monsoon-proof and oil-proof. Things can, therefore, only get better, right?
Well, economics is not called the dismal science for nothing. But, to be charitable to the profession, I would see its role more in the spirit of moderating expectations -- either irrational exuberance or irrational despair.
When things appear to be zooming, it is good to point to the many factors that may stop them in their tracks -- not so much with the certainty that this will, indeed, happen, but to warn people that there are things that might spoil the party and something needs to be done about them.
The role is, of course, reversed when the economy goes into a tailspin; then, we point to things that will reverse the slide and get the process back on track.
In this spirit, let me highlight a few things that threaten to derail the current momentum. First, when manufacturing starts to accelerate, it will clearly demand more by way of all kinds of inputs, including services from infrastructure.
Power, in particular, threatens to play the spoiler. For the last several years, we have somehow managed to eke out the additional megawatt from a horribly constrained system.
But, as we continue to flog existing capacity, sooner or later, the system will break down. We are simply not bringing new capacity on stream fast enough to accommodate the kind of growth we are seeing in industry, or, for that matter, the huge boom in various kinds of domestic appliances.
The faster we grow, the faster we approach this very critical constraint and, therefore, the sooner the slowdown is likely to come. In our entire post-Independence history, we have rarely spoken of our economy overheating.
The only exception was the three-year period during the mid 1990s, when we exceeded 7 per cent growth in each year.
The pattern we are observing now does raise concerns about overheating, with the very real consequences slamming headlong into an immutable capacity constraint.
Looking beyond the aggregates and into specific sectors that are driving the manufacturing boom, we see the central role of capital goods -- machinery and equipment and commercial vehicles being the two main contributors.
We have on our hands a classic investment cycle, in which short-term growth is being driven by a build-up of capacity across a variety of sectors.
Investment decisions, by their very nature, are highly cyclical. As each new machine or truck gets added, the next potential buyer is asking himself: is there enough steam in the economy to utilise all the capacity that has just been created?
Will my machine or truck be able to operate at reasonable capacity? The more machines that have been installed before his, the more reluctant he is to buy one for himself.
At some point, no new machines are bought and an investment downturn begins. The reluctance to invest can be hastened by negative perceptions about the overall investment climate, so there is a role for policy in managing the duration and severity of the cycle.
Finally, with respect to the services sector, we appear to be entering the paradoxical situation of scarcity amidst plenty.
Even as we have to deal with the challenge of finding jobs for 400 million people, we find ourselves scrambling for people to fill positions in the ITES and other sectors; the basic language and other skills that are needed to keep these components of the services sector going at the current pace.
Attrition levels are enormously high and salary increases follow apace. In short, infrastructure constraints, the nature of investment decision-making and people shortages do not make for an uncontrolled bull run.
(Views expressed are personal)
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