India Inc. Q3 Results: A Grim Picture Indeed

The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Abhishek Barui, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur

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The results season has been more of a source of concern than of optimism for India Inc. According to CRISIL, aggregate net profit (excluding financials, oil companies and Vedanta) declined marginally by 1% y-o-y in Q3FY16. In fact, earnings has declined in four of the last five quarters. Revenue growth, too, was tepid at 3.6%. Excluding metals and manufacturers linked to the commodity cycle, revenue growth was 7%, while net profits increased by 15.7%. Among individual sectors, pharmaceuticals, media, IT services and passenger vehicles were the outperformers, while metals, capital goods and construction were the laggards.

Many experts have expected to see an earnings recovery from the last two quarters of the fiscal but the results do not reflect the same optimism. The capital goods sector is one of the worst hit lead by poor performances of BHEL and Crompton Greaves. The metal companies too faced a torrid time owing to global slowdown and falling prices of commodities. The banking sector saw declining profits. With corporate sector under stress, credit growth has remained sluggish. The NPAs too have risen for the banks. The only positive comes from the pharma sector which continued to outperform on lower raw material costs and better product mix.

The optimism that was seen after the election of the new government has since died down. With the fears of global slowdown and uncertainty regarding oil prices mounting, India Inc. has a major challenge in its hand. The reforms and the structural changes including GST which were promised seems to be put in the back burner, with only lip-service provided to the corporates. The pet project of the Prime Minister ‘Make in India’ is yet to take flight. With the uncertainty about Fed rates hike, foreign investors too are unsure about investing in the emerging markets and the banks, especially PSBs, too are facing a capital crunch. The ranking of India has improved in various ease of doing business polls, but many corporate giants have complained of no significant improvements in this department.

With all these factors, earnings recovery of the corporate sector still looks a few quarters away. What India Inc. is hoping for from the government is to make the structural changes that were once promised to help it flourish.

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