Friday May 3, 09:00 AM
Tech to pull... |
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By Equitymaster.com
The first quarter US GDP growth figure at 5.8% came as a pleasant surprise. Government spending on defense, consumer demand and reduction in inventories were the propellers for the growth. But business investment is yet to recover.
A fall out of the easing of the economic situation in the US has been that almost all the software companies in the recent past have indicated increased client interest. Also, in the tough times the US companies have found the proposition of offshore software development to be extremely attractive. Thus, it will not be very surprising to see that the software companies reporting strong growth figures in the near future. While, the markets and the software companies themselves are expecting to witness the buoyancy post 1HFY02, the improvement in all possibility might occur earlier.
Another trigger for the technology stocks could be the 'IT enabled services' boom. Most of the top rung software companies like Infosys, HCL (HCLL.BO, news) Technologies, Wipro (WIPRd.BO, news) and Satyam that are a part of the indices have announced plans of foraying into the IT and BPO outsourcing markets. Considering the fact that these companies have a well-established client base, steep growth from the new ventures could is a likely possibility. Mphasis BFL has for the fiscal FY02 reported a 359% growth in the revenues of its call centre subsidiary, MsourcE.
While the situation in the external environment is improving, the Indian economy is not sending out positive signals. The situation in Gujarat and its political fall out is hurting the flow of money into equities. The net FII investment for the first four months is down by 71%. The total activity (sales and purchases) in the first four months has declined by 15%. The Sensex and the Nifty are lower than levels seen about a year ago.
Also the industrial sector has been ailing for quite sometime now. While the manufacturing sector has recorded a growth of 2.7%, between April to February, 2002. The slowdown is evident from the fact that the growth in the corresponding period last fiscal was a significant 5.7%. The use-based index of industrial production for capital goods has shown a 4.2% decline during April to February 2002. During the same period in the previous fiscal IIP for capital goods actually grew by 2.1%. Banks too have been talking about low credit off take, inspite of a soft interest rate environment. Thus, the investments in the industrial sector is another a cause for concern.
The 6.0% to 6.5% growth expected for FY03 is expected to largely stem from the agricultural sector. This again will likely depend on the monsoon during the year. Thus, the performance on the bourses now depends either on the rain Gods or the business investments in the US economy picking up.
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