While sectors like cement and metals are likely to be adversely impacted, engineering, consumer goods and pharmaceuticals could bring some cheer.
India Inc looks all set to grow at a slow pace in the current financial year. That is, if the financial performance of Corporate India for the first nine months of 2007-2008 is any indicator of things to come.
During the first nine months ended December 2007, net sales of the corporate sector grew 15 per cent, compared with 27.4 per cent in the financial year 2006-07.
The net profit also moved up at a slower pace of 27.93 per cent vis-a-vis 41.56 per cent in 2006-07.
The profit margins were also hit badly during the nine-month period due to rising cost of production, decline in international prices of metals and appreciation of the rupee.
Oil marketing companies have been hurt, especially due to the government's policy to keep oil prices artificially low.
Even cement and steel companies have had to bear the brunt of the government's "price control to control inflation" strategy, despite rising cost of production.
The operating margins in the first nine months were up marginally from 15.40 per cent in 2006-07 to 15.77 per cent for the same period in 2007-08. However, this was largely on account of margin expansion during the first and second quarters.
Several sectors, including chemicals, construction, diamond and jewellery, media and pharmaceuticals faired badly during the nine months of 2007-08 as compared with their performance during the full year of 2006-07.
The worst hit were automobile, auto ancillaries, metals, computer hardware, paper, shipping, sugar, trading and tyre sectors.
Going forward, the fourth quarter, which is the busiest quarter of the earnings season, is likely to give us a better picture of the extent of slowdown in the earnings growth of India Inc.
The challenges facing Corporate India are many. These include spiralling crude oil prices, rising commodity prices, rising interest rates, the appreciating rupee and the fear of a global economic slowdown.
On the other hand, sectors those are likely to bring some cheer, according to analysts, are engineering, fast-moving consumer goods and pharmaceuticals. On the whole, it is clear that though India is not looking at a recession, a definite slowdown in the economy is on the anvil.
Corporate India's profit growth in the third quarter ended December 2007 was the lowest in the last three quarters.
The sales grew at an average 16.55 per cent as against 28.21 per cent in the corresponding period last year.
The poor growth in sales affected net profits, which grew 24.55 per cent, including extraordinary income and only 13.1 per cent (excluding extraordinary income) against 79.7 per cent in the corresponding quarter last year.
The cost of production increased by 17.30 per cent for the quarter ended December 2007, while employee costs were up by 24.56 per cent. However, softening of commodity prices and the rupee's appreciation made imports cheaper, leading to a rise in raw material costs by only 14.52 per cent.
© 2025