No upturn in capex cycle as order books stay small

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SummaryDisappointing numbers from industry heavyweights Bharat Heavy Electricals and JSW Steel and lacklustre results from core sector players like Grasim, Sesa Goa, Crompton Greaves, Adani Power and Container Corporation suggest the economy may be far from bottoming out.

R940 crore. A weak global economy has hurt export and import volumes at the firm, which contracted for the second straight quarter, down 6% y-o-y in the three months to December. Volumes in the home market dipped 5% y-o-y and could be under pressure due to the increase in railway freight.

Overall, it’s been a desultory December quarter for India Inc so far with companies not able to drum up revenues.

Net sales for a clutch of 749 companies (excluding banks and financials) has risen just 12.5% y-o-y, the slowest in several quarters. The weak top line should have stunted profits but softer commodity prices have helped and with expenditure under control — up just 10.8% y-o-y — operating profit margins have expanded 125 basis points y-o-y, driving up operating profits by 22%. A big jump in other income of 25% y-o-y has helped push up net profits for the sample by 33.8% y-o-y.

How sluggish the economy is is reflected in the anaemic growth of the core sector index, which gained just 2.6% y-o-y in December, thanks to negative growth in coal, natural gas and fertilisers. The index, which has a weight of 37.9% in the IIP, has seen a growth between April and December of 3.3% y-o-y on a base of 4.8% in the corresponding period of 2011-12. India’s manufacturing PMI moderated to a three-month low of 53.2 in January from 54.7 in December with the fall resulting from both domestic and export new orders; the new orders to inventory ratio fell to 1.16 from 1.21, indicating some downside risk to the PMI in February.

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