Thinkpad: Numbers Talk
The earnings season has rolled back around and there is an early theme playing out – inflation.
Hindustan Unilever Ltd., which reported 11% revenue growth, saw much of this come from price hikes rather than underlying volume growth, which was a tepid 4%. In commentary following the earnings, HUL Chairman and Managing Director Sanjiv Mehta rang the inflation alarm bell – “We haven’t seen this kind of inflation for many years.”
For Unilever, this isn't just an India story. Globally, the company has increased prices the most in almost a decade, Bloomberg reported.
Asian Paints Ltd. sang a similar tune. “We haven't seen this kind of inflation in 40 years,” said Amit Syngle, managing director of the country’s largest paint maker. The company has only absorbed part of the input cost increases and plans more price hikes in the coming quarters.
Input costs are singeing other sectors too. Like cement. You get the drift.
When bond markets said “I see inflation”, equity markets sneered. It is now the turn for bonds to turn around say “we told you so” or #BondsKnowBest.
Now, remember inflation is not all bad for earnings. Higher nominal growth will actually mean stronger revenue growth but it also means that the easy money policies run by central banks will come up for review sooner than some may have hoped.
The government, on its part, has been attempting to keep inflation in the food basket in check while refusing to intervene to bring down fuel inflation. How well is the strategy working? Pallavi Nahata had this interesting analysis.
Over in the financial sector, the country's largest private lender HDFC Bank Ltd. reported earnings which showed that banks are starting to step on the pedal and lend with a bit more confidence. But government-owned lenders are still going slow. Overall credit growth is inching up but at a glacial pace.
Old-timers will remember former Reserve Bank of India Deputy Governor Rakesh Mohan's 2003 speech where he chastened banks for “lazy banking”. Someone may want to dust-off that speech and replay it.
In all fairness, there is still reason for banks to be cautious. HDFC Bank, for instance, saw about a fifth of its restructured personal loans go bad. That reflects the stress on incomes, which is lingering for many. Crisil expects retail bad loans in the range of 4-5% and small business stress in the range of 17-18%. A recency bias may prompt us to think those estimates don't look bad, but they aren't good either.
We'll leave you with a couple of good reads from the week gone by:
Former State Bank of India Chairman Rajnish Kumar’s memoirs gave us some interesting insights into the events of the last few years. The stories behind the Yes Bank rescue and the Jet Airways collapse are worth reading.
BQ also did a deep dive into the gig economy this week. How deep is the discontent? Shivam Vahia examines.
And finally, the good news story of the week – India hit the 100 crore vaccination mark. Here's hoping that allows for a cheery festive season.
Have a good one.