India Inc shows growth spreading by end of Modi's sophomore year | Reuters

MUMBAI/NEW DELHI Indian companies are posting their best earnings results since Prime Minister Narendra Modi swept to power two years ago, giving the clearest sign yet that India's fast, but patchy, economic growth is becoming more broad-based. Though headline growth figures make India one of the world's fastest growing economies, weak private investment and low capacity utilisation rates have painted a less rosy picture. Going by India Inc's surge in profit growth in the first three months of the year, however, the outlook really does seem to be brightening, as benefits feed through from lower interest rates and government spending in infrastructure and defence.

Reuters May 27, 2016 11:44:54 IST
India Inc shows growth spreading by end of Modi's sophomore year
| Reuters

India Inc shows growth spreading by end of Modis sophomore year
 Reuters

MUMBAI/NEW DELHI Indian companies are posting their best earnings results since Prime Minister Narendra Modi swept to power two years ago, giving the clearest sign yet that India's fast, but patchy, economic growth is becoming more broad-based.

Though headline growth figures make India one of the world's fastest growing economies, weak private investment and low capacity utilisation rates have painted a less rosy picture.

Going by India Inc's surge in profit growth in the first three months of the year, however, the outlook really does seem to be brightening, as benefits feed through from lower interest rates and government spending in infrastructure and defence.

On Tuesday, India will release gross domestic product data for the January-March quarter. Year-on-year growth of 7.5 percent is forecast by a Reuters survey economists, slightly faster than the previous quarter's 7.3 percent.

"Macro indicators are suggesting that at the ground level the economy is gaining momentum," said Dhiraj Sachdev, a fund manager at HSBC Asset Management in Mumbai.

"That has also been validated in terms of better corporate earnings in many of the sectors."

Operating profits for 289 companies that have reported results so far leapt 25.5 percent year-on-year in the March quarter, compared with 1.7 percent growth in the previous quarter, according to Thomson Reuters data.

It is Indian firms' best showing since the April-June quarter in 2014.

Put alongside the 6.8 percent decline in earnings that data provider Factset reckons companies in the S&P 500 suffered during the same quarter, India's corporates have some things going in their favour.

India's broader National Stock Exchange share index has surged around 17 percent from a near 2-year low on Feb. 29, outperforming a 7 percent gain by the Asia-Pacific MSCI index excluding Japan.

This week, Morgan Stanley upgraded Indian equities to "overweight" from "equalweight" citing rising dividends, and prospects of a simpler country-wide sales tax, lower interest rates and benign monsoon among its reasons.

BUMPY RIDE

Sadly, corporate balance sheets remain stretched, making it hard to revive private investment, which has lagged for the past four years.

Yet, sectors tied to capital goods and infrastructure such as steel and cement are recovering. After five quarters of double-digit declines, operating profit in the materials sector rose 22 percent in the March quarter.

Following droughts in the past two years, monsoon rains, due in coming weeks, are forecast to be better than average, which should underpin demand, particularly from the rural sector.

And while factories are running nearly 30 percent below capacity, sales are increasing.

Consumption of long steel products, used mainly in construction, has averaged 10 percent annual growth on a rolling three-month basis over the past six months. The cement and power sectors have also seen demand improve.

Commercial vehicle sales are growing at a double-digit pace on the back of a strong replacement demand, industry data shows.

Projects worth nearly $31 billion were completed in the March quarter, according to think-tank CMIE, up from $13 billion in the previous quarter. New investments in the same period more than doubled.

There are still plenty of less encouraging indicators.

A weak global economy hardly bodes well for exports, which have fallen for the last 17 months. Businesses are also finding it hard to borrow as a spike in stressed loans has made banks wary, and Thomson Reuters data shows Indian firms are taking longer than usual to pay or get paid.

"The economy is undergoing a slow and bumpy recovery after three years of tepid growth," said Shilan Shah, an economist with Capital Economics. "But we have seen false dawns before."

(Additional reporting by Gaurav Dogra, Tripti Kalro, and Aastha Agnihotri in BENGALURU; Editing by Simon Cameron-Moore)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date:

also read

Antony Blinken in India Updates: 'We view India as a force for good in defence of free, open Indo-Pacific,' says US Secretary of State
World

Antony Blinken in India Updates: 'We view India as a force for good in defence of free, open Indo-Pacific,' says US Secretary of State

Antony-blinken News: Antony Blinken’s India visit, US Secretary Of State Antony Blinken Arrives In Delhi On A Two-day Visit To India,will meet Indian Prime Minister Narendra Modi and Foreign Minister S Jaishanka, and Doval Today, Security High on Agenda as Blinken Meets Jaishankar,

Quad not on military lines, vaccine availability depends on regulatory, legal processes, Antony Blinken tells CNN-News18
World

Quad not on military lines, vaccine availability depends on regulatory, legal processes, Antony Blinken tells CNN-News18

On the vaccine front, when asked about when India will get the two US-made vaccines Moderna and Pfizer, Blinken said that there were approvals, regulatory and legal processes required for receiving vaccines, and "that’s where things stand

How raging wildfires in Canada, eastern US have pushed New York into an air pollution crisis
World

How raging wildfires in Canada, eastern US have pushed New York into an air pollution crisis

Several large fires have ravaged the western United States in recent days — notably in California, Nevada and Oregon, where the dangerous Bootleg Fire is still raging, even though the fire season has only just begun