Indian companies: in for a rough ride?

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India’s abysmal GDP growth rate and industrial production figures, combined with falling inflation and a weak rupee, caused the country’s companies to suffer their worst revenue growth in over two years during the quarter that ended in March, according to a study by the Economic Times newspaper.

For the 2,302 listed companies the Economic Times analysed – a group which excluded finance and petroleum companies – revenue growth fell to 13.5 per cent year-on-year, compared to 19.3 per cent in the previous quarter, and 17.8 per cent in the quarter to September 2011.

For the country’s top 200 companies, things were not quite so dire and could even be considered surprisingly resilient considering the deluge of bad macroeconomic news. But they could get a lot worse in the coming quarters, analysts said.

Nischal Maheshwari, head of research at Edelweiss, said he was concerned that revenue growth in the country’s top companies had fallen to 18-18.5 per cent from the 20-22 per cent range of recent times. But he also noted that the rough operating environment had caused businesses to trim costs, thereby increasing profitability margins.

Rajat Rajgaria, head of research at Motilal Oswal, agreed, noting that 18-18.5 per cent aggregate earnings growth was “very solid growth compared to what people have been expecting”.

Indeed, during a quarter in which the economy grew just 5.3 per cent and industrial production contracted a whopping 3.5 per cent in March, 18 per cent earnings growth doesn’t seem so bad.

But the languishing GDP growth has shown that consumption – traditionally the engine of the Indian growth story – has taken a major hit, and that is bad news for the coming quarters.

“I think the investment cycle was broken a couple of years back, and the consumption cycle has now been broken,” said Jagannadham Thunuguntla, head of research at SMC Global. “So clearly India is heading into a very rough patch where neither segment is performing…[and] the weakening rupee is causing companies and investors to shy away from new investments.”

One Mumbai-based analyst was more blunt: “[The quarter ending in June] is going to be very rough – it will be a train wreck.”

Related reading:
Economists cut India growth forecasts, FT
Battered rupee highlights India woes, FT
Chart of the week: China and India, gaining weight, getting slower, beyondbrics

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