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Economic Recovery not strong enough: Mint

Mint: December quarter results indicate weak economic recovery:

Economic Recovery not strong enough: Mint

The results show that sequential sales growth in the December 2009 quarter, while certainly higher than the decline in the December 2008 quarter, was much weaker than for the December quarters in 2007, 2006 and 2005. The same trend is seen both in operating and net profit growth, the difference being wider in particular for the latter number. The wider divergence in profit growth is probably due to rising input prices, which have not been passed on to end users, leading to a squeeze in margins.

The numbers suggest that while a recovery has begun, it hadn’t yet built up enough momentum in the December quarter. Since then, however, macro indicators such as the HSBC Purchasing Managers’ indices for both manufacturing and services as well as the rebound in non-oil imports suggest that the recovery is getting stronger; and companies are also seeing a return of pricing power

With the markets going south again, will there be another squeeze and diminish chances of the momentum flowing through?

The Nifty EPS, meanwhile is at 230 and is only marginally above the levels a year ago; another indicators that the momentum hasn’t yet set in.

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