Dear Reader,
The first batch of FY24 annual data is painting a rosy picture about the economy and Corporate India. The manufacturing sector ended FY24 on a strong note. The HSBC India manufacturing purchasing managers’ index climbed to a 16-year high of 59.1 in March.
GST collection topped Rs 20 lakh crore in FY24, rising 11.7 percent from the previous year. Freight traffic at Indian Railways increased by 5 percent and scaled new highs. Annual passenger vehicle sales rose to the 40 lakh mark and defence exports crossed Rs 21,000 crore in FY24.
In the corporate sector, credit rating upgrades continue to outstrip downgrades. “The continued improvement in credit profiles can be attributed to similar reasons seen in FY23 -- deleveraged balance sheets, sound domestic consumption demand, especially in the premium segment, and the government’s continued focus on capex spending,” says Arvind Rao, senior director, head of credit policy group at India Ratings.
What’s more, the overall outlook remains healthy. CRISIL’s credit quality framework indicates a favourable outlook for 21 of 26 corporate sectors, thanks partly to robust balance sheets and healthy operating cash flows.
Provisional sales updates by public sector entities indicate healthy performance in FY24. Shares of Bharat Electronics and Hindustan Aeronautics rose to new 52-week highs in Tuesday trading after the companies reported a 13.7 percent and 11 percent jump in FY24 revenue, respectively. Hindustan Aeronautics clocked its highest ever annual revenue. Order book at both companies increased from year-ago levels. Export sales at Bharat Electronics jumped 92 percent.
Even so, all is not hunky-dory. Overall exports are in the slow lane. Chemicals and merchandise exporters are facing demand challenges.
Demand challenges are visible in the domestic market also. Sales of tractors and commercial vehicles have declined in recent months on a year-on-year basis. As our Chart of the Day illustrates, large parts of south and western regions of the country are facing low water levels in reservoirs and drought-like conditions.
These conditions can weigh on rural demand if the monsoon season does not yield good rains this year. What's more, sales data from automobiles and consumer staples companies indicate subdued demand for economy and entry-level products. So, while investors can take heart from the headline numbers, they should be mindful of stock valuations and demand softness in key pockets of the India economy.
Investing insights from our research team What kind of returns should investors expect from Indian equities in FY25? A sequential spike in demand for CVs, tractors in March
With better free cash flow yields, this FMCG proxy warrants attention
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R Sree Ram
Moneycontrol Pro
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