A leading foreign bank recently recently ranked India as the fastest growing economy in the world. When Deutsche Bank projected a growth rate of 6.8 per cent for India - well above the growth rates of China, Malaysia, Hong Kong and South Korea - in the year 2000, stock market analysts and punters were not surprised. For, the market has already noted the changes on the economic horizon, especially the turnaround in many key sectors.The Sensex recently touched the all-time high of 4810 and the market capitalisation (total market value of all listed shares) has jumped by nearly Rs 1,00,000 crore to over Rs 6,50,000 crore within three months.No doubt, the end of the Kargil conflict catalysed the bull run, but a major factor which charged the bulls is the beginning of the reversal of fortunes for the economy. This is more visible on the industrial front with many sectors like cement, aluminium and steel showing clear indications about a resurgence of demand.``Virtually all indicators suggest an economicrevival; fiscal revenues are rising, exports are up and demand in many key sectors has improved,'' Deutsche Bank said in a study on India, adding, ``the factors driving revival are the positive supply-side effect from a bumper winter crop and the accommodative monetary stance by the Reserve Bank of India.'' The fall in inflation rate to the 20-year low of 1.83 per cent from 8 per cent in August 1988 clearly indicates that prices have not really picked up even as demand has gone up.``Our 12-month BSE Sensex target of 5,800 reflects rising corporate earnings and an improvement in valuations. We think an improving macro environment of low inflation, rising growth and a benign interest rate environment and strong market dynamics are supportive of valuations,'' said Ridham Desai, India Strategist, JM Morgan Stanley. Other investment firms also agree with this argument and highlight the recovery process.``Industrial growth in the first two months of this year has been 6.3 per cent with several sectors showingconcrete signs of recovery,'' said JP Morgan, another leading investment firm from the US.Which are the sectors leading the recovery process? A study by the Centre for Monitoring Indian Economy (CMIE) says the ``the industrial sector is well into the recovery mode. Key industries like steel, aluminium, automobiles and cement have given clear indications about a resurgence in demand in the first two months of the current year. We expect industrial production in 1999-2000 to grow by at least 6 per cent.'' This would be almost 50 per cent above the modest growth of 4 per cent witnessed in 1998-99. Prospects for yet another good crop are expected to spur higher spending in many of the sectors in the current year.CMIE says production of cement was up by 15 per cent in May taking the two months production up by 20 per cent. This trend was continued in June too. Steel output by primary manufacturers also rose by 13 per cent for the second consecutive month in which the steel sector as a whole posted a positivegrowth, despite the tardy progress recorded by the secondary manufacturers. Aluminium output showed a double-digit growth since May 1999 with manufacturers cutting down discounts and announcing a price hike.With demand falling, major vehicle companies like Telco and Ashok Leyland had posted big losses last year. However, things are better this year. Sales out-paced production in the heavy and light commercial vehicles (LCV/HCV) segments in the first two months of the year. This was the first time in 27 months that a double digit growth was witnessed in the light commercial vehicle sector. Higher demand for vehicles is considered as a sign of the buoyant economy. ``Passenger cars also saw a notable rise of 20 per cent,'' the CMIE study said.Industrial machinery output was four times more than the value of output in April 1998. The growth in this section is also evident from the fact that the output in the first four months of 1999 has already surpassed the value of total output in the preceding nine months.While tractors saw a nearly 8 per cent growth in production, refrigerator output in April doubled to 2.3 lakh units.A study by a leading financial daily has indicated that net profits of 105 companies in the first quarter (April-June) of the year 1999-2000 have shot up by 27 per cent. Sales of these companies showed a rise of nearly 10.6 per cent. The stock market favourites like pharmaceuticals, fast-moving consumer goods and software sectors are continuing their growth rates. N R Narayana Murthy, chairman of Infosys Technologies (which reported a 156 per cent growth in net profit to Rs 61 crore for the first quarter), expects the software sector to grow by 30 to 40 per cent in the current year.Two major turnaround examples in the current year are Siemens and Indo Rama Synthetics. Siemens, which made a loss of Rs 56 crore in the previous year ended September 1998, has already made a profit of Rs 1.82 crore in the last three months of the current year. Similarly, Indo Rama Synthetics which posted awhopping loss of Rs 159 crore in the previous year has made a net profit of Rs 6.70 crore in the first quarter of the current year. It says partially-oriented yarn and polyester filament yarn prices have gone up by 18 per cent and 25 per cent respectively in the current year.Some industrialists have cautioned about the sustainability of the recovery in some segments. Reliance Industries had posted a 16 per cent growth in net profit to Rs 510 crore. However, Reliance Managing Director Anil Ambani told journalists after the board meeting that ``the recovery has already shown signs of weakening. Based on present market trends, we believe that the current momentum is earnings growth and is unlikely to be sustained over the balance of the financial year.''There are other skeptics also. ICICI Securities is not fully convinced about the recovery theory. ``There are signs the Indian economy is on the recovery path, but there are also contrary signals. Higher industrial production and increased excise dutycollection figures suggested manufacturing sector growth, but a decline in non-oil imports and in inflation of manufactured products were signs the economic recovery was not yet definite,'' said an ICICI Securities study. The Centre for Monitoring the Indian Economy feels that recent signs of recovery in production witnessed in core industrial sectors would take some more time to rekindle the project investment activities in other industrial sectors.JP Morgan feels that the recovery process can be accelerated by cutting the interest rates further. Certainly, the recovery needs to gain momentum if India is to remain the fastest growing economy. The process has begun and it needs to be sustained.
