Recovery of economy: It’s so near, yet so far

The worst may be over but we are still not out of trouble. That seems to be the message from the third quarter financial results that have just gotten over.

While some sectors such as IT and automobiles have done well, others are still in the doldrums. Despite stro-ng positive surprises from sectors such as IT and automobiles, there are still areas of concern. Investors looking for growth could consider IT, automobiles and banking, say brokers who spoke to this publication.

“IT results were the big surprise,” says Mr Apurv Shah of Prabhudas Lilad-her. All the three IT majors, Infosys, Wipro and TCS delivered better than expec-ted results despite a weaker dollar. “Auto ancillary was another sector that has done well. Autos did well too, but that was more or less on expected lines,” he adds.

A leading broking house said that except for IT where results were uniformly good, the rest of the sectors saw a mixed bag. In capital goods L&T disappointed but others did well. In telecom, Idea did not disappoint but others did. The recovery is not extremely strong. Even if companies’ profits grew 50-60 per cent it was on a very low base of the 2008 quarter. In the co-ming quarters, IT, steel and banks are amongst the sectors that analysts feel will do well in the coming year.

“We can expect tremendous numbers from metals because demand is good as the economies are coming out of recession globally and domestically the infrastructure demand is growing” says Mr Alex Mathew of Geojit BNP Paribas. “Private banks are also expected to do well for the year,” he says. The primary concerns, which could affect the recovery include an increase in interest rates, increasing raw material prices and the government withdrawing the stimulus package. While the overall improvement in conditions has seen several companies tapping the equity markets, brokers rule out a case of euphoria. “Retail investors are still keeping away from issues that seem overpriced. So the situation hasn’t yet developed into a bubble” says Mr Shah. In construction sector, the orders are there. It is execution which is the problem. In case of banks, sanctions for loans are all there – the problem is with disbursements.

Its too early to call it euphoria — for instance, retail investors are keeping away.