Going by the numbers, you wouldn’t think there was any reason at all for the Indian market to have rallied the way it did last year—posting dollar gains of 24% to trump all emerging markets (EM). Growth was weaker than expected (GDP for the six months to September was 5.4%), consumer inflation stayed close to 10% levels and the rupee gave up a fifth of its value between April 2011 and December 2012. That volumes for manufacturers of commercial vehicles came off in the three months to December 2012, driven down by lower demand for freight, is an indication of how sluggish the economy is. As is the fact that project starts, as monitored by CMIE, were worse in Q3FY12 on an already weak Q2FY13. It’s no surprise then that corporate earnings have been anaemic for some time now—net profits for the Sensex (ex-oil) have risen more than a 10% only in two of the seven quarters to September 2012. One would have imagined though that after such an uninspiring performance, it was time for an uptick.
However, that may be some time away—Citigroup says the Sensex ex-oil set of companies is poised to report only a 7.5% rise in net profits in the three months to December 2012, with sales reporting a single-digit increase and operating margins continuing to be under pressure. That, again, is not totally unexpected. Factory output may have jumped 8.2% y-o-y in October, driven by festive demand, but is expected to contract by about 1% for