Southern shift

Growth in money supply and bank deposits have been lower in the last financial year.

Growth in bank deposits in FY05 has been lower than in the previous year. Aggregate deposits have been at Rs 2,15,531 crore compared with Rs 2,23,563 crore in the previous year.

And if you adjust for the conversion of IDBI into a bank, the deposit growth in FY05 falls even further to Rs 2,11,962 crore, a good Rs 11,601 crore lower than in the previous year.

While aggregate deposits rose 17.5 per cent in FY 2004, it increased by 14.3 per cent (without making the adjustment for IDBI) in FY 2005.

Money supply growth in FY05 too has been much lower than in the previous year. Y-O-Y M3 growth has been 12.9 per cent (after adjusting for IDBI), compared with 16.4 per cent in the previous year.

This tightening has been primarily due to lower accretion of net foreign exchange assets "" growth in these assets was 20.9 per cent in FY05, compared to 39.2 per cent in FY 04.

But if deposit growth has been so bad, and with credit growth so high, how is it that banks have been able to put over Rs 30,000 crore in reverse repos? That's because deposit growth has picked up in the last three months of the year, while credit growth has slowed.

Bank credit increased by Rs 65,082 crore in the three months to March 18, while deposits went up by Rs 97,368 crore. That gives an incremental credit-deposit ratio of 67 per cent for the last quarter of FY 05, well below the 103 per cent incremental credit-deposit ratio for the year.

Cement

Cement companies have recorded strong growth in their cement dispatches for March 2005 "" in the case of Gujarat Ambuja Cement Ltd (GACL) they have expanded 9 per cent, while for ACC it was 6 per cent.

For both these players, March despatch volumes are the highest ever levels achieved in a single month. The top 4 players have together grown their cement despatches by 9.26 per cent in March.

Meanwhile, companies have also recorded buoyant cement despatch figures for FY05 "" in the case of ACC they have expanded by 7.8 per cent, while for the Aditya Birla Group, which includes Grasim and Ultra Tech, it has grown 5.44 per cent.

Prices on all-India basis have been more or less flat in March and analysts point out that is due to the high base effect in the previous year.

However, prices in certain markets have been strong ""- in the case of UP, prices have reached record levels of Rs 170 per bag. It is understand that a pick up in construction activity has helped keep prices firm.

However, the concern for cement companies still remains the relentess rise in fuel and energy costs. That's the reason most players are expected to record a flat Q4 FY 05 on a y-o-y basis, in terms of net profit.

Over the next few months, an expected pick-up in construction activity before the monsoons should help cement players get better realisations.

Steel companies and price hikes

The recent hike in prices by steel companies had been anticipated for several months now, given the rising input costs for steel companies. Tata Iron and Steel in late Q2 FY05 had cut prices by Rs 2,000 per tonne for its direct customers.

While players like Tata Steel have captive supplies of key raw materials like iron ore, they still would have to contend with coking coal prices which have risen almost 150 per cent over the past year.

For medium and small sized players, the pressures on input costs are even more pronounced. This segment has to also contend with contract iron ore prices jumping up almost 71.5 per cent.

While domestic demand for steel products has been strong for quite some time, analysts said a slowdown in demand from user industries cannot be ruled out as growth slows in these industries.

Nevertheless Tata Steel produced 4.11 million tonne of saleable steel during FY05, a rise of 0.5 per cent on a year-on-year basis.

This production growth has to be viewed in the context of the company's largest blast furnace, the G Blast Furnace, being down for capacity enhancement for four months from December '04. The company's enhanced capacity of 1 million tonne is expected to come on stream shortly.

Domestic steel prices were about 8 per cent higher in the March quarter FY05 on a YOY basis. Coupled with a focus on higher value products and the productivity measures implemented, it should help Tata Steel report a 80-85 per cent growth in its FY05 earnings, while for SAIL a growth of 50 per cent is anticipated.

With contributions from Amriteshwar Mathur