Sunil Jain: In the black

Most analysts expect a poor second quarter for corporate India, but CMIE has a bit of a different spin to it. According to CMIE, the decline in sales growth in the last few quarters (and an actual fall in the last two) will probably continue to be reflected in the results that we’ll see over the next few weeks, but a large part of this is due not so much because of a change in real demand — it is more driven by a change in price levels, particularly of commodities. So, CMIE discounts the nominal sales by inflation and finds the fall in sales growth is largely driven by a fall in commodity prices.

While it expects sales growth to accelerate by December, it finds that profit margins are once again back to normal levels. Combine this with the increased efficiencies of India Inc — a decline in the number of working capital days, debtor days which have not gone up despite the big liquidity crisis and a very low debt-equity ratio of 0.88 — and CMIE concludes India Inc is ready to begin its next cycle of investment.

According to CMIE, while 400 projects worth Rs 130,000 crore were commissioned in April-September 2009, this will go up to Rs 300,000 crore in October-March 2010. More important, while fresh investment proposals had dropped to Rs 170,000 crore in April-June 2009 (a 3-year low), fresh investment proposals were back to Rs 330,000 crore in July-September 2009. On average, the order book position of capital goods and construction companies continue to be over 2.5 years of sales. Happy Diwali! (see graph)