Election euphoria made our benchmarks break into new territory. SENSEX moved past 40K and NIFTY crossed 12K for the first time. Though this happened intraday as BJP gets a clear number which brought clarity that aggressive reforms will continue.
As the election news becomes a non-event very soon after the indices moved into new high’s now it is time to get back to reality. The immediate concern is on the earnings front.
About 50% of companies have declared their March 19 quarter, about 40% of them have registered above 25% earnings growth. On the face of it, this numbers seem to be good. The concern is that, sales numbers are not supporting. Only 12% of companies that have reported results are having good sales growth.
Without sales going up only profits rising, it will hit the ceiling very soon. This gain is possibly from the efficient management of capital and operations. While eventually if sales doesn’t grow, earnings will stop growing too.
The new government has many immediate challenges to address. Jobs, which is a global concern now which is also staring at more & more job losses due to disruption. Rating issues of NBFC’s which has caused a bigger concern on the growth. Lending is slowed down, which will impact growth.
Slowdown in the Auto space, where a lot of disruptions are going to come at a faster pace. Government needs to create space for the transformation to catch pace with our neighbouring countries. Thailand, Malaysia etc are going strong on EV’s, China is the major supplier of vehicles. We have challenges competing with China, need infrastructure to accommodate the change. All of these require immediate address.
Infrastructure, which has been the reason of many big corporate defaults in our country. Corporates have paid the price for their greed, next turn is on the government side. Government decisions were the reason for the infrastructure mess in our country. This needs to be addressed immediately with an aggressive approach.
With a clear mandate, the new government should be addressing the important issues at a faster pace only then markets will continue to rally.