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Demand Conditions For Manufacturing Sector Weakened In Q4 FY19 Says RBI

The Reserve Bank released data on performance of the private corporate sector during the fourth quarter of 2018-19 drawn from abridged financial results of 2,701 listed non-government non-financial (NGNF) companies. Demand conditions in the manufacturing sector weakened as reflected in a sharp moderation of sales growth (y-o-y), primarily due to contraction in sales of petroleum products and slowdown in demand faced by motor vehicles and other transport equipment companies.

Sales growth improved for food products and beverages and textiles while it remained steady and in double digits for cement and cement products and pharmaceuticals. Sales growth of the information technology (IT) sector remained broadly unchanged; while it improved for transport and storage services industries and moved out of the contraction zone in the case of the telecommunication sector.

Input costs (i.e., raw materials) eased for manufacturing companies in Q4:2018-19 in line with the softening of commodity prices. The manufacturing sector also experienced a deceleration in staff cost growth mainly in motor vehicles and other transport equipment, and iron and steel industries whereas the services sector continued to experience elevated staff cost growth. Operating profit growth in the manufacturing sector continued to slacken in the face of lower growth in the value of production.

Pricing power in terms of operating margin remained flat in case of the manufacturing sector; lack of support from non-operating income led to a decline in net profit margin. Robust demand conditions led to an increase in operating profit margin of the services (non-IT) sector; however, net profit margin recorded by this sector turned negative due to heavy losses booked by the telecommunication companies.

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