The Asian Development Bank (ADB) has upgraded its forecast for developing Asia to 7.9% in 2010 from 7.5%, in the wake of buoyant exports, strong private demand and sustained stimulus policy effects. For India though, the projection remains unchanged at 8.2%. Given the bullish economic outlook for Asia, it?s not surprising that investors still prefer emerging to developed markets. According to EPFR data, net cash taken in by all emerging market equity funds soared to $3.1 billion in the week to July 14, 2010. That?s way above the weekly average of $ 783 million seen in the previous two weeks.
Even Latin American funds are seeing money move in, after three months of redemptions, even if the amounts are relatively smaller than that coming into Asia. Again of the $830 million or so that Asian- dedicated funds attracted, almost a third went to China funds; China, according to the ADB, will grow at 9.6% this year. India too has been attracting a fair amount of money; in this case about 14% of the money moved into Indian funds.
But then India has been a favoured investment destination for some time now, pulling in $9 billion in 2010 so far. The strong earning posted by banks indicates that the growth momentum is intact. HDFC Bank grew its loan book by an impressive 40% in the three months to June 2010 suggesting good demand for credit. Canara Bank saw its net interest income grow nearly 34% and the bank needed to make less provisions for loan losses, a sign that companies are getting back on their feet. For a sample of 96 companies, net sales rose nearly 20% year-on-year while net profits rose nearly 25%.The growth in the bottom line is, however, below that seen in the March 2010 and December 2009 quarters, when it was more than 32%, thanks partly to higher raw material costs and higher outflows on account of interest. Among the disappointments are Concor, which reported relatively flat year-on-year, revenues of Rs 920 crore for the June 2010 quarter and lower net profits. Mindtree?s numbers fell way short of the Street?s expectations; Kotak Securities points out that the margins declined more than expected without being able to absorb the entire impact of the revision in compensation.
Sesa Goa?s sales volumes too came in a tad below estimates and analysts are concerned that spot iron ore prices have come off by 32% over the past two months. Indeed, most of the earnings numbers so far have been in keeping with the forecasts and except for TCS no company has really surprised the Street; at Crompton Greaves? the consolidated top line of Rs 2,300 crore was in line with estimates though analysts say the power segment results didn?t live up to expectations. What?s worrying them is the 13% shortfall in the monsoon; ?Let it rain please,? goes the headline of one report by HSBC which adds that every drop matters and that investors are counting.
While growth is not expected to take a big hit even if the rains fall somewhat short, there could be pressure on the fisc because subsidies will rise and more importantly, on food prices, which means inflation won?t come off in a hurry. That, clearly, cannot be good news for consumption