No recovery yet

But weak rupee helps India Inc

The trends in second-quarter corporate results are in line with broader macroeconomic indicators for the July-September period. The slowdown continues. Domestic investment and consumption remain muted. However, to some extent, the weaker rupee did provide some compensation since it resulted in gains for foreign exchange-earning businesses. Analysts expect more earnings downgrades than upgrades once all results are posted. Full-year consensus earnings estimates have been cut. The rating agencies have also issued warnings that rating downgrades will exceed upgrades.

Out of a set of 363 listed companies that have posted results so far, 70 have posted losses and another 101 have posted lower profits compared to July-September 2012. Overall, net sales for this set have grown 16 per cent to Rs 4.32 lakh crore. Net profit growth has been anaemic, rising just seven per cent, to Rs 46,714 crore - with 192 companies posting an increase in profit. Interest costs are up 17 per cent and constitute 12 per cent of net sales. But 168 companies have logged gains of above 10 per cent. The big gainer among different industries is the information technology, or IT, sector. Its profits have risen 27 per cent, while sales are up 28 per cent and guidances have improved. But even here, margins have been squeezed. The pharmaceutical sector hasn't done well, due to adverse action by the US Food and Drug Administration. Ranbaxy posted losses and Wockhardt saw reduced profits. The auto ancillary industry has done well since the export-competitiveness of the sector has risen. Automobiles have also done well, despite low domestic sales. Maruti benefited from a weak yen, while Tata Motors' overseas subsidiary, Jaguar Land Rover, delivered excellent results to compensate for weak domestic performance. All the major two-wheeler and three-wheeler companies have registered profit growth, and tractor major Escorts has seen a turnaround. Gems and jewellery exporters have also gained considerably.

The bad news comes from the core sectors. Cement has collapsed, with profits dropping by more than 50 per cent. Infrastructure development and construction firms have also struggled and so has the capital goods sector. The power distribution and transmission sector has also seen profits drop by more than 60 per cent. Finance presents an interesting picture. The Reserve Bank of India had in July squeezed out liquidity in a panic reaction to the falling rupee and key interest rates, such as the one for the marginal standing facility, were hiked. Despite that, private banks have shown reasonable performances, although with a slowdown. In the non-banking financial sector, there is a trend of consolidation. The larger non-banking financial companies (NBFCs) have managed to boost the bottom line, although growth has been slower than projected. Smaller NBFCs have been hit hard. They have been unable to control borrowing costs or to boost volumes.

The rupee has now stabilised at higher levels so the benefits of depreciation will be less marked. Investment is also unlikely to rise much ahead of the forthcoming general elections. The best bet for a revival in sentiment would be a combination of higher Diwali-related consumption and the possible priming effect of heavy campaign spending. But while stock market indices have climbed on buying by foreign institutional investors, nobody seems to have much confidence in the chances of a rapid rebound in the real economy. In fact, pessimists aver that the economy may not have bottomed out yet.