Belt-tightening, not demand, helped India Inc in Q2

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New Delhi | Updated: December 12, 2016 7:19:38 AM

India Inc continues to move in a terrain of low demand which acts as a barrier to any broad-based recovery. Though a sample of 2,558 companies (excluding OMCs, banks and financials) shows that their net profit grew by 11.26% during the July-September quarter compared to the same period last year, net sales grew by only 4.8%.

Solar power capacity is expected to reach 12,000 MW by the end of this fiscal. Additionally, since renewable-sector plants come under 'must-run' status under the Modi government's tariff policy, their higher generation has impacted procurement of power from thermal plants. (Reuters)Solar power capacity is expected to reach 12,000 MW by the end of this fiscal. Additionally, since renewable-sector plants come under ‘must-run’ status under the Modi government’s tariff policy, their higher generation has impacted procurement of power from thermal plants. (Reuters)

India Inc continues to move in a terrain of low demand which acts as a barrier to any broad-based recovery. Though a sample of 2,558 companies (excluding OMCs, banks and financials) shows that their net profit grew by 11.26% during the July-September quarter compared to the same period last year, net sales grew by only 4.8%. In this scenario, it is clear that the bottomline growth is not supported by strong revenues but lower costs. Going forward, the scenario is likely to get worse as the effect of demonetisation is sure to set in, which has dampened demand even more. Sectors like FMCG, auto, etc, are expected to report slowdown as demonetisation has weakened demand. Analysts worry that if the sentiment continues to be weak, recovery will be delayed.

For instance, in November, vehicle sales across categories registered a decline of 5.48%, the steepest in 43 months when total sales had declined by 7.75% in March 2013. Consumers are postponing buys and the impact is most visible in rural areas, especially in the two-wheeler space, where cash component pays a major role. Even fast-growing utility vehicles sales posted 10.01% growth during November, the lowest pace in the past 10 months, data from the Society of Indian Automobile Manufacturers showed.

Similarly, talking about the impact of demonetisation on the FMCG sector, Dabur CEO Sunil Duggal had recently said primary sales have been hit by around 30% in November.

 

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