Different cycles for different sectors

Tracing India’s index of industrial production (IIP) over the past two years tells the complete story of how the slowdown and the subsequent recovery unfolded. Industrial activity, which grew strongly between 2006 and early 2008, scaled a new peak in March 2008. The month marked new production records for many sectors- automobiles, cement, steel and coal. The buoyancy of March gave way to a sharp correction the very next month. What would have normally been a seasona l blip (history shows that the IIP has invariably peaked in March every year followed by a dip in April) stretched into several months of tepid numbers, before the index finally bottomed out in October 2008.

The above trends in the IIP, however, underplay the vastly different cycles that different sectors have experienced in this slowdown. Trends in monthly production/sales numbers (for the sectors which disclose them), show that cement, passenger cars, consumer durables and two-wheelers were among the least impacted by the slowdown. Bottoming out between July and December 2008, they managed to rebound so strongly from their lows that sales and output have already surpassed records set last March.

On the other hand, sectors such as commercial vehicles, utility vehicles were so severely impacted that despite a substantial expansion in sales numbers this year, their present sales remain well below their peaks of last year. There has even been a third set of sectors such as steel, coal and power, which have remained largely immune to the slowdown. Save for a seasonal blip last April, these sectors have remained on a broad upward trajectory through the ups and downs in other sectors.

The cycle in the case of capital goods has been among the least decisive. After breaching a new record in March 2008, the sector saw a sharp seasonal blip in April 2008. The index followed a broad uptrend until March this year, but has registered a sharp setback in April. Whether this is just a seasonal blip, which will be recouped next month or will stretch into the coming months still remains to be seen.

Some more than others

The progress that sectors made on the road to recovery depended largely on the severity of the damage they took last year. Among the IIP constituents, capital goods was undoubtedly the worst hit, suffering a 33 per cent contraction from peak to trough. Mining and durables too saw indices fell by a fourth before recovering. Basic goods (industrial feedstock) and manufacturing, the sectors highly represented in the listed space were among the ones to suffer the least, with the indices shrinking just 9 and 15 per cent from their peak to trough.

There were divergences within sectors too. The phase of contraction for the automobile sector lasted between March and December 2008, after which monthly sales began to climb. But while passenger car sales fell by 28 per cent down peak to trough, sales of utility vehicles fell to a third of their peak levels by December. Medium and heavy commercial vehicles saw their sales plunge by a precipitous 80 per cent, but two-wheelers got away with just a 22 per cent decline. That explains why sales of two-wheelers and passenger cars are already back to reasonable year-on-year growth, while commercial and utility vehicles, despite a substantial rebound from their lows, will take time to get back to growth.

Punished stocks emerge new champions

It’s a case of ‘the most punished stocks’ turning into outperformers post election results. Among the BSE 500 companies, as many as 458 companies outperformed the Sensex between May 18, 2009 and June 4, 2009, a SundayET analysis has revealed. Surprisingly, the outperformers are not those fundamentally strong or defensive companies, which investors were chasing, during the last one year but those which were major underperformers mainly because of dearth of funds.

According to Aseem Dhru, MD & CEO of HDFC Securities, when market sentiments move from extreme pessimism to cautious optimism, the most punished stocks, which investors in the past have mercilessly offloaded, always gain the most. “When the equity market fell during 2000-2002, even Infosys Technologies
lost almost half of its market price but the stock was one the outperformers in the following bull-run,” he said.

According to the analysis, the sensex gave a return of around 5% during the above mentioned period, whereas more than 90% of the companies on the BSE 500 index have given relatively higher returns. Companies such as Unitech, DLF, Suzlon Energy, Sobha Developers
, Tata Steel, Jaiprakash Hydro Power, Parsvnath Developers, Kingfisher Airlines, Future Capital Holdings and Gammon India are the prominent gainers. In fact, Unitech and Kingfisher Airlines gained more than 50%.

Stock prices of companies such as Sobha Developers and Jaiprakash Hydro Power, meanwhile almost doubled.

This has happened on the back of easing liquidity position and revival in demand.

The Emerging Sector - Fixed

What you think the most pragmatic and indisputable emerging sector will be?

Is it alternate energy themes like Bio-fuel, Wind energy or Solar power solutions?

Or Mobile VAS, DTH or HITS technology?

Or is it Agriculture sector?

Or Electric/Hybrid Vehicles ?

All the above sectors can include in the emerging category with out much thinking and have good scope with the coming time. These sectors are very much depending on the upcoming technology changes and the adoptability issues up to an extent. But I would like to state a few facts on another area which is inescapable for the global community and the sector should come about an emerging or none a way back.

I am talking about the Water Management stuff which will be the most emerging and inevitable sector in coming days. Drinking water will be the rarest and most demandable substance in 21st century. Experts says, if a world war occurs again … its for water …nothing else.

We know that nothing on the earth can survive without fresh water, that a human can’t survive after three days without it. I will provide some facts and statistics related to water which will help you to assess the importance of this sector as well the significance of saving every drop of water.

The following info may also help you to make a decision on investment in the companies involved in water management with a long term vision by understanding how this stuff "water" going to be precious. Most of the information quoted below is related to this sector and some I placed only cause of the gripping nature of the news. I have named some companies below which are in the field of this indisputable emerging sector. Decide yourself whether you include the best of them in your portfolio after reading the portion full.

Jain Irrigation

KSB Pumps

Kaycee Industries

Hindustan Dorr-Oliver
ION Exchange India
Subhash Projects
Thermax
Bisleri/Himalaya(Mineral Water)
Pratibha Industries
Chembond Chemicals
IVRCL Infra
Kirloskar Brothers
Eureka Forbes

70% of the Earth is covered by water.

Only 2.5% of the world’s water is fresh while 97.5% is saline and in oceans.

Only 0.3% of this freshwater is available from rivers, lakes and reservoirs

The rest is stored in distant glaciers, ice sheets, and mountainous areas – all places that we can hardly access.

Less than 1% of freshwater is usable, amounting to only 0.01% of the Earth’s total water.

If the entire world's water were fit into a gallon jug, the fresh water available for us to use would equal only about one tablespoon

Some 97% of liquid freshwater is stored underground in aquifers. People, especially in rural areas, are mostly dependent on groundwater. Around 2 billion people, a third of the world’s population rely on it. Aquifers are most brutally exhausted in parts of India, China, US, North Africa and the Middle East. It can take centuries for aquifers to reinstate. So the world is currently running a groundwater overdraft of 200 billion cubic meters a year.

By 2025 two-thirds of the world’s people will be facing water stress. The global demand for water will have grown by over 40% by then.

An average of 10 lakh people dies cause of wars every year. But 50 lakh dies with out water or water related issues. War or Water ? which is most fatal ?

40 billion hours each year are spent collecting water in sub-Saharan Africa, equal to over 19 million full-time employees.

Over a billion people in the world do not have access to safe water; this is roughly one sixth of the world's

While the world's population tripled in the 20th century, the use of renewable water resources has grown six-fold. Within the next fifty years, the world population will increase by another 40 to 50%. Then ?

Over the past century our water consumption increased tenfold according to the WHO.

By 2025 two-thirds of the world’s people will be facing water stress. The global demand for water will have grown by over 40% by then

443 million school days are lost each year due to water related diseases

Many women and young girls in developing countries must walk as much as six miles everyday to retrieve water for their families.

The recommended basic water requirement per person per day is 50 liters. But people can get by with about 30 liters, 5 liters for drinking and cooking and another 25 to maintain hygiene. The reality for millions comes nowhere near.

Each year, more than 2.2 million people in developing countries die from preventable diseases associated with lack of access to safe drinking water, inadequate sanitation and poor hygiene.

Every 15 seconds, a child dies from a water-related disease.

88 percent of all diseases are caused by unsafe drinking water, inadequate sanitation and poor hygiene.

At any given time, half of the world's hospital beds are occupied by patients suffering from a water-related disease.

People in rural areas are four times more likely than those in cities to have no safe supply of water.

The urban population pays on average 12 times more per litre. In Jakarta, Indonesia the poor pay water vendors 60 times the price of water from a standard connection; in Karachi, Pakistan, 83 times; and in Port-au-Prince, Haiti and Nouakchott, Mauritania, 100 times.

By 2015, water will be the villain in death of 1 in every three.

The usage of fresh water Increased by 6 folds over last hundred years.

The fresh water depleted to 1/3rd in last 20 years and the usage has been doubled.

A study by International Water Management shows, by 2025 India will be in a deadly shortage of drinking water/fresh water.

India uses the 93% fresh water for agricultural purpose, 3.27% for industrial purposes and the rest 3.73% for domestic usage.

Saline water can be desalinated for use as drinking water by going through a process to remove the salt from the water.

Each day the sun evaporates a trillion tons of water.A small drip from a faucet can waste as much as 75 liters of water a day.

A person must consume 2 litres of water daily to live healthily. Humans drink an average of 75000 litres of water throughout their life.

Over 70,000 different water contaminants have been identified.

If all new sources of contamination could be eliminated, in 10 years, 98% of all available groundwater would then be free of pollution.

Freshwater animals are disappearing five times faster than land animals.

Humans daily use about 190 litres (50 gallons) of water.

Two thirds of the water used in a home is used in the bathroom.

To flush a toilet we use 7.5 to 26.5 litres (2 to 7 gallons) of water.

In a five-minute shower we use 95 to 190 litres (25 to 50 gallons) of water.

To brush your teeth you use 7.5 litres (2 gallons) of water.

For an automatic dishwasher 35 to 45 litres (9 to 12 gallons) of water is used.

The 40000 crore steel plant (Mittal Group) at Orissa required 12 billion metric ton water in a year.

1 kg of steel production requires 45-295 liters water.

1 kg of paper production requires 160-273 liters of water.

1Kg Alluminium production requires 1340 liters of water

1 Kg synthetic fibre production requires 200 liters of water

1 Kg Glass production requires 70 liters of water

Purification of 1 litre petrol requires 10 liters of water

1 Kg Butter production consumes 10 liters of water

1 KG sugar production requires 9 literes of water

1 Kg Sulfuric Acid production requires 10 liters of water

It takes 5,680 litres (1,500 gallons) of water to process one barrel of beer.

About 25,700 litres (6,800 gallons) of water is required to grow a day's food for a family of four.

It takes 7,000 litres (1,850 gallons) of water to refine one barrel of crude oil.

To manufacture new cars 148,000 litres (39,000 gallons) of water are used per car.

Is this sector emerging? I think a fixed one!

It is expected that increasing demand and thinning presence will make the water costlier and they, the related service providers will do better in days to come. It is recommended that a good long term vision portfolio must have one or two good scrips from the above list.