Keep The Faith: Time to Invest Again
Hitting the Road
Ask P.M. Telang, the newly appointed managing director of Tata Motors about his business prospects. “It is not the lack of demand, but the sudden dearth of vehicle financing since October 2008 that affected our sales. The fact that liquidity situation has eased, has corrected that situation.” From the middle of last year, leading banks like ICICI Bank and HDFC Bank pulled the plug on vehicle financing because they felt the interest rate hikes by the Reserve Bank of India would make it tough for the truckers to pay on time.
For the past six months, Tata Motors cut back production by nearly 40 percent largely to bring down its inventory. Sales, too, had flagged. Today, the demand for its large trucks and tractor trailers that carry heavy engineering goods and export consignments to ports still hasn’t picked up — a clear reflection of India Inc’s self-imposed cap on any further capital expansion. However, Tata Motors is selling more and more of light commercial vehicles and buses — typically bought by state transport agencies and small and medium sized enterprises intent on modernising their fleet. “This year’s sales of LCVs and buses are actually more than last year,” says Ravi Pisharody, head of sales for commercial vehicles at Tata Motors.
There is a 95 percent correlation between commercial vehicle scales and the movement of Nifty. When CV sales fell in 2007-08, this was very much reflected in the index. After March 2009, CV sales have risen and so has Nifty
It’s the same story for other sectors like cement and steel. Despatches have held up and prices have actually increased month-on-month. Even in real estate, where accurate data is always hard to come by, demand hasn’t evaporated. Buyers are now coming back to the market at the right price. In Thane, a leading builder sold 60 flats within a fortnight in March priced at Rs. 45 lakh each, after he brought down prices from Rs. 6,000 per square feet to Rs. 4,100. Thirty kilometres away in Mahalaxmi in mid-town Mumbai, Lodha Group’s director Abhishek Lodha says the demand for his premium, upscale apartments has shown a big jump since February. He claims to have sold a dozen apartments each priced at about Rs. 2 crore.
It is these signals on the ground that are helping build investor confidence. Retail brokerage Sharekhan spent the past one year closing down several offices it had opened across the country, particularly in small towns like Nashik and Salem. Today, day traders are slowly coming back every day to use their terminals in their offices across Mumbai. At the Morgan Stanley conference, the organisers claim that investors held 1,200 one-to-one meetings with executives of 55 companies to examine investment opportunities.
Even cash-strapped companies are now tapping into this new-found investor confidence. There has been a spree of qualified institutional placements. Firms like Unitech, Indiabulls Real Estate and Power Trading Corporation of India raised money without a sweat through QID. For Unitech, the timing couldn’t have been better. Its debt-to-equity ratio is expected to come down from 3.55 in 2007-08 to 1.9 in 2008-09.
NIFTY DECOUPLES FROM DOW ON THE UPMOVE
When the Dow index falls, it drags global markets down. But in the absence of very bad news, from the US all the other markets are on their own. This shows Asia is "decoupling" from the US on the upmove
Last time the financial markets went into a tailspin in India in the mid Nineties, the economy almost ground to a halt. The lack of demand, the high cost of money and inefficient operations, for instance, pushed Tata Motors into India Inc’s biggest corporate loss. Several companies had to clean up the mess inside, wait long for cheaper finances and pray for demand to pick up. For Tata Motors, which entered the car segment during this period, the recovery came only in 2003.
This time, however, investors won’t have to wait that long. Costs have come down and profit margins have already improved. So far, consumer demand is holding steady. Indians have bought more TVs, bikes and cars this year than they did last year. And for sectors like steel and cement, pricing power has already improved. Says Tata Motors Pisharody: “Economic activity in some sectors will eventually drag the inactive ones like manufacturing to move. Then surely the situation will appear more normal.”
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