Quarter check: India Inc maintains growth tempo:

MUMBAI: Although the P-notes issue has taken the focus away from corporate earnings, things are not all that bad for India Inc. Experts may point out that the Q2 report card of India Inc does not paint a rosy picture. But optimists attribute it to a higher base effect. The message being that there are no signs of a slowdown yet.

To quote Fortune Financial’s Sanjay Makhija (head-institutional broking), “Right now earnings have taken a backseat to P-note and political developments. But the market has been trading on sentiments and not fundamentals.” Mr Makhija, however, was of the view that the market has already discounted any bad news. Going ahead, the key trigger for the stock market will be the Q2 performance of Corporate India.

According to an ET analysis of 374 companies, there has been a 28% rise in net profit in the September quarter vis-a-vis the same period last year. However, the net profit had seen a 43% growth in the second quarter of FY07 compared with the corresponding quarter of FY06. The net sales have also seen a decline in growth over the same period (see table). However, other income component has seen an increase of around 61%.

The analysis takes into account only those companies whose results are available for comparison with the previous two years’ corresponding quarters. Newly-listed companies have been excluded.

Experts maintain that the growth rate has come down mainly for IT, cement, auto and power sectors. Despite showing mixed revenue growth, the banking sector has shown better profitability. Thirty firms posted losses this quarter compared with 39 companies (in Q2FY07) and 49 companies (in Q2FY06). Says Bajaj Capital senior vice-president (research and financial planning group) Sanjeev Kumar Gopalakrishnan, “High interest rates and rising costs are pulling down auto sales although two-wheeler stocks are piling up. The appreciation of the rupee has affected the IT sector and it would be difficult to maintain higher growth rates on a higher base. Capacity constrains are restricting the growth of the cement sector. The sector will have new capacities becoming operational in 1-3 years time.” According to him, the overall profit growth has come down, though in some instances, like in HDFC Bank and Axis Bank, profit margin has improved. “Overall, the second quarter sales growth (y-o-y) has seen a downturn compared with the first quarter sales growth (y-o-y) across all major sectors.

Experts say the results do not indicate a slowdown in growth, but highlight the inability of companies to maintain higher growth rate due to capacity constraints and appreciation of rupee.