Skip to main content

Posts

Showing posts from 2013

Where Are The Fundamentals?

The following charts are useful in appreciating the previous bull market in India. Improving interest coverage ratios and uptick in growth in the first half of the previous decade created a favourable environment for assuming a long equities posture. The acceleration in equities post 2005 coincided with a down tick in debt service capacity. This is in tune with behavioural characteristic of investor attention reacting belatedly to fundamentals. Cut to the present, coverage ratio is at 12-year lows and yet the equity index is at levels similar to 2007, when coverage ratios and economic growth were vastly better.  Improving balance sheet health also reflected in a down tick in interest expenses relative to revenue until 2006. Post 2006, this metric has evolved on a deteriorating trend, and bank gross NPAs have grown at an accelerated pace. Both are at 12-year highs. The broad economic slowdown is partly to blame; however, blame ought to be apportioned to bull ma...