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: Another corporate results season, for the first quarter of 2009-10, is upon us. Infosys, as usual, starts the process, with its results out today. The results will be scrutinised for signs of broad recovery or the lack of it. This macroeconomic detective work based on company books is necessary and useful. But sectoral messages sometimes carry equally vital messages. Take IT, which along with pharma, oil & gas and metals are likely to post less-than-stellar results. IT top and bottomlines will recover eventually, but already signs of future challenges are visible. Unless Infosys and others make the grade to consulting and producing original, winning software, a large chunk of the plain vanilla work will migrate to other low-cost IT producers. Auto, another high-profile sector, can tell an equally important story. Auto is expected to improve its results, with a pick-up in domestic demand for passenger cars and light commercial vehicles. Decline in raw material costs has helped, as has some softening of lending rates. But if interest rates don’t go down any more—a combination of government and RBI action makes this a possibility—can the recovery hold? It has implications for the domestic auto parts sector that needs a big Indian market to make up for the loss in western demand, a loss that’s likely to persist because auto will be among the trailing sectors in the western economic recovery.
Banks—probably the most perverse story is here. Credit growth slowed to 15.7% in the first week of June, maintaining the recent trend. Low credit disbursal means that net interest income growth will be low and will continue trending downwards. Plus, banks continued to deploy large amount of funds in low-yield government securities (as much as 67% of incremental deposits in April-May). This puts pressure on interest margins as well. Now, with the government ready to borrow record amounts and the government’s debt manager, RBI, also responsible for setting the short-term interest rate, and banks obliged to follow RBI rules on the amount of government paper they hold—the statutory liquidity ratio—how will banks offer lower rates and lend more? Infrastructure is among the critical sectors that need more money. Market participants are expecting infrastructure companies to post a topline growth of around 40% on the back of robust order inflows. The government has helped by increasing external commercial borrowing limits and allowing IIFCL to raise Rs 1 lakh crore. But can infrastructure...
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