Although the real impact of the US slowdown is yet to be felt, India Inc. is facing the brunt in advance
Perhaps ‘slowdown’ is the most talked about word since we entered the year 2008. Raison d’être, the present state of the US economy! While the world is going apprehensive over a probable recession in the US and its impact on the world economy, the word slowly and quietly seems to associate itself with India Inc. A closer look at its Q3 report card confirms the same.
After a superb show for quite sometime now, India Inc.’s profitability seems to be on a downward slope for the third quarter of the financial year 2007-08. As per the results announced so far (2,024 companies as on February 4, 2008) aggregate gross sales of India Inc. stand at Rs.5.49 trillion as compared to Rs.4.75 trillion for the same period in the previous fiscal, registering 15.5% growth. Indeed way below the 28% growth recorded during Q3 FY 2006-07. However, the worst is when you consider the reported profit after tax growth figures, which have come down to 27% to reach Rs.704 billion from a high of more than 50% in Q3, 2006-07. So who is to be blamed?
“Rising input prices are the culprit,” reasons R. K. Gupta, MD, Taurus Mutual Fund. According to him, “Prices of raw materials have gone up during last half year or so. But due to the market competition, companies are failing to pass it to consumers. As a result their bottom line is getting affected.” A further analysis of profitability reveals that the growth story dips further (to 24%) if one doesn’t considers India Inc.’s ‘other incomes’, which would perhaps be injustice as other incomes is one area that India Inc. would gloat over; after all it has gone up by a whopping 77.5%. But then, what about the volatility in the share market? Isn’t this decline in growth going to affect it further? “Markets will definitely react to Q3 earnings, but they will be more interested in the future earnings due to the fact that better earning prospects will continue to lure investors, despite a poor previous quarter earning acting as a caution,” says an optimistic K. K. Mittal, Fund Manager, Escorts Mutual Fund. However, one thing is for sure – the current Q3 results will not help much in eliminating the ongoing volatile phase in the market.
Perhaps ‘slowdown’ is the most talked about word since we entered the year 2008. Raison d’être, the present state of the US economy! While the world is going apprehensive over a probable recession in the US and its impact on the world economy, the word slowly and quietly seems to associate itself with India Inc. A closer look at its Q3 report card confirms the same.
After a superb show for quite sometime now, India Inc.’s profitability seems to be on a downward slope for the third quarter of the financial year 2007-08. As per the results announced so far (2,024 companies as on February 4, 2008) aggregate gross sales of India Inc. stand at Rs.5.49 trillion as compared to Rs.4.75 trillion for the same period in the previous fiscal, registering 15.5% growth. Indeed way below the 28% growth recorded during Q3 FY 2006-07. However, the worst is when you consider the reported profit after tax growth figures, which have come down to 27% to reach Rs.704 billion from a high of more than 50% in Q3, 2006-07. So who is to be blamed?
“Rising input prices are the culprit,” reasons R. K. Gupta, MD, Taurus Mutual Fund. According to him, “Prices of raw materials have gone up during last half year or so. But due to the market competition, companies are failing to pass it to consumers. As a result their bottom line is getting affected.” A further analysis of profitability reveals that the growth story dips further (to 24%) if one doesn’t considers India Inc.’s ‘other incomes’, which would perhaps be injustice as other incomes is one area that India Inc. would gloat over; after all it has gone up by a whopping 77.5%. But then, what about the volatility in the share market? Isn’t this decline in growth going to affect it further? “Markets will definitely react to Q3 earnings, but they will be more interested in the future earnings due to the fact that better earning prospects will continue to lure investors, despite a poor previous quarter earning acting as a caution,” says an optimistic K. K. Mittal, Fund Manager, Escorts Mutual Fund. However, one thing is for sure – the current Q3 results will not help much in eliminating the ongoing volatile phase in the market.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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