Editorial

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Updated on


February 23, 2020


Published on


February 23, 2020

Domestic conditions can improve, but external environment is challenging due to COVID-19

The December quarter earnings of listed companies show that there is little to cheer, and that the Centre needs to stay on its toes to lend a hand to corporate India, until demand revives. It is obvious that the sharp deceleration in economic growth in the current fiscal is taking a toll on the demand for products and services of listed companies. The revenue growth of the 2,816 listed companies has been hit hard, with year-on-year growth skidding from 23 per cent in December 2018 quarter to 1 per cent in September 2019 quarter, to nil growth in the December 2019 quarter. Not much comfort can be derived from the fairly robust growth in profitability of 44 per cent for these companies either. This spike was largely aided by the cut in corporate tax last September.

Consumer-centric sectors struggled to show profits in the December 2019 quarter, with automobiles, consumer durables and fast moving consumer goods manufacturers recording lower profits. Real estate companies too were found struggling to sell their residential real estate inventory; the duress in the sector dragged the earnings of ancillary segments such as sanitaryware, cement and steel. With the governments cutting back on their capital expenditure, capital goods manufacturers and engineering companies also declared lower profit. Barring a few private sector banks, core performance deteriorated for most banks. Low credit growth and the slow progress of cases under the IBC too remain a cause for concern for the banking sector. It was a mixed bag for IT players with slowing client spends in the US and political uncertainty in Europe. One segment that is on the brink, largely due to the Centre’s policies, is the telecom sector. If the Centre wants to keep the corporate sentiment upbeat and continue to attract foreign direct investment, it needs to revisit its policy approach. Bharti Airtel and Vodafone Idea had reported aggregate losses of around ₹74,000 crore in the September quarter due to higher provisioning for AGR dues and losses of about ₹6,300 crore in the December 2019 quarter.

High frequency data such as auto sales, industrial production, credit growth and so on, suggest that it may be too soon to expect a dramatic recovery in the fortunes of India Inc. While there are many domestic drivers that can help — such as the lower corporate tax rate, easing input prices and interest cost, a good rabi crop and higher food inflation helping rural consumption — the joker in the pack is the fallout of COVID-19 (coronavirus disease 2019) on the global economy. Lower Chinese consumption is likely to hurt Indian exporters. Domestic commodity producers will suffer due to lower prices and those sourcing supplies from China are likely to be hit. Given these uncertainties, the Centre needs to stay vigilant to support companies in whatever way it can.

Published on


February 23, 2020