: What's really happening in Shanghai at this point in time? What's pulling the indices DOWN?

Q: What's really happening in Shanghai at this point in time? What's pulling the indices down? Are there fresh fears about both economic growth rate as well as earnings growth?
A: I think the most important fact is probably the weaker profit number coming from the statistics bureau. The bureau said the industrial sector profit declined by 5% in January-February versus the same period last year. This growth rate was 25% for 2011. So it's look like a very sharp decline.
My take on this is that this is very tentative because lots of companies tend to procure raw material three or four months ahead of the production, and therefore, the January-February cost of goods sold reflected the market price in September. We know that in September raw material price was too very high, it collapsed in the following months. Therefore for January and February the selling price was coming down already, but cost of goods sold remained very high.
In the coming few months, I expect the cost of goods sold in the P&L will come down quite substantially because it will reflect the market prices in November-December. So in that sense, I think the worry is overdone in the market and for the full-year, we are still looking for 10% positive growth for the industrial sector earnings.



GAUTAM KUMAR
PGDM 2ND SEM