With the rupee losing 10% in the 3 months to September 2013, exporting companies have benefited. But few firms in the home market have pricing power; Asian Paints may have held on to its price line but Ambuja Cements has seen realisations fall 9% y-o-y; HUL posted a just-about-satisfactory volume increase of 5% y-o-y on a not so large base of 7% while Bajaj Auto’s domestic motorcycle volumes in Q2FY14 were down16% y-o-y. Much of the 15.5% top line growth reported by a clutch of 767 companies in Q2FY14 is the result of a falling rupee. Which also hurt net importers like Jet Airways whose much larger fuel bill was partly responsible for the airline reporting a record loss. Costlier imports, taken together with high local inflation has resulted in expenses flaring up as seen in the lower operating profit margins (OPM); for the same sample OPMs have contracted 136 basis points y-o-y in Q2FY14 to 15.4%, the smallest in several quarters. With interest costs shooting up, the pressure has filtered down to the bottom line and net profits have fallen 3.3%.
This would not have been so worrying were demand in the key construction and infrastructure sectors picking up. But at HCC, the end-September order book was smaller than it was at the end of June and March, indicating slow inflows and perhaps some cancellations. Moreover, sluggish revenue growth suggests slower execution of projects. Even at Larsen & Toubro, while orders inflows were decent, a big chunk of it came from the overseas markets. An indication of how much the infrastructure build-up is slowing can be gauged from the disbursements by banks and financial institutions; IDFC’s loan book grew just 3.4% y-o-y in Q2FY14, falling 3% sequentially. Banks have lent at a slower pace to the corporate sector, signalling poor demand for capacity expansion. Demand appears to be weak across industries; Mahindra & Mahindra Financial Services’ disbursements grew at just 4%in Q2FY14—down from 32% in Q1FY14. Not numbers indicative of an economy that’s turning.