Mixed results

Economic activity remains uneven

An examination of the second-quarter (July-September) results of 3,200 listed companies indicates a slowdown in both sales growth and the momentum in profit generation. There are signs of higher credit demand. Consequently, a tighter money supply is showing up in elevated interest costs. The pace of activity in the corporate sector has picked up compared to a year ago but it remains uneven. Not surprisingly, Q2FY24 was disappointing compared to Q1FY24. At the aggregate level, net sales reached Rs 39.5 trillion in Q2FY24, 4 per cent higher year-on-year (Y-o-Y), and they showed 1.3 per cent growth over Q1FY24, or quarter-on-quarter (Q-o-Q). Reported profits after tax (PAT) were at Rs 3.6 trillion, 39 per cent higher Y-o-Y but 1.4 per cent lower than in Q1FY24. Interest costs were up 38 per cent Y-o-Y, though total expenses (including interest) were curtailed by 2.7 per cent Y-o-Y. Banks have seen 35 per cent Y-o-Y growth in credit disbursement. Despite a spike in interest costs, which led to tighter net interest margins, their PAT was up 34 per cent. Oil-sector profits have been hit. Refiners had to contend with high crude oil and gas costs while upstream oil and gas producers saw their profits capped by the windfall tax.

Excluding oil and gas, and banking and finance, the rest of the sample showed only 3 per cent Y-o-Y growth in net sales, 16 per cent growth in operating profits, and 14.7 per cent gain in PAT. But PAT was down by over 5 per cent Q-o-Q. The Union government gained as the tax payout was up 23 per cent Y-o-Y. Some key sectors showed mixed trends. The auto-ancillary and automobile sectors reflected an appetite for big-ticket consumption. Ancillary sales were up 15 per cent Y-o-Y, while PAT was up 92 per cent. The automobile sector has seen 24 per cent Y-o-Y growth in sales and a 98 per cent rise in PAT, with strong Q-o-Q performance. Two-wheeler companies like Hero MotoCorp and Bajaj Auto witnessed strong growth, which indicates an uptick in rural demand. However, the results of fast-moving consumer goods companies were disappointing. There was 0.7 per cent Q-o-Q shrinkage in sales, with just 6.5 per cent Y-o-Y growth, which can be attributed to inflation. Their PAT grew 13 per cent Y-o-Y. This pattern of better big-ticket consumption and flat low-ticket consumption is unusual.

Software results were flat with cautious guidance for the forthcoming quarters. Q-o-Q sales were up 2 per cent (constant currency) while Y-o-Y sales expanded 7 per cent. These companies’ PAT was up 4 per cent Y-o-Y. Pharmaceuticals — another sector with a big export share — has done better with 13 per cent Y-o-Y growth in sales and 22 per cent growth in PAT. Capital goods (electrical and non-electrical) saw 14 per cent Y-o-Y growth in sales and 35 per cent Y-o-Y growth in PAT. Power-sector results also indicate a pickup in activity, with sales up 10.5 per cent Y-o-Y. Steel and non-ferrous metals have been hit by lower global demand and prices. Steel companies had 4 per cent Y-o-Y growth in sales and a 27 per cent Y-o-Y rise in PAT, but PAT has dropped 55 per cent Q-o-Q. Meanwhile, cement registered 12 per cent Y-o-Y sales growth with PAT expanding five times. While the second-quarter corporate results broadly indicate a sequential decline in momentum, it would be interesting to see the gross domestic product numbers, which will be released later this week. Y-o-Y growth is expected to be strong and analysts will look for cues if the momentum can be sustained.