15 Jan 2009 4:31 PM

Corporate India to record slower sales growth in the December 2008 quarter: CMIE

The steep fall in commodity prices and slowing export demand is expected to result in a slowdown in sales growth of Corporate India to 20 per cent during the December 2008 quarter compared to 34 per cent recorded in the September quarter. This may be attributed to the impact of the Global Liquidity Crisis that erupted in late September 2008.

While the manufacturing sector is likely to grow by a slower 16.8 per cent, non-financial services sector is expected to maintain its growth rate of around 30 per cent. The construction and banking sectors are expected to grow by 39.6 per cent and 25 per cent, respectively during the December quarter.

A more than proportionate rise in expenses on raw materials, power & fuel and interest vis-a-vis sales will result in a 10.3 per cent fall in aggregate PBDIT during the December quarter compared to the year-ago quarter. Higher interest and depreciation is expected to erode net profit by 33.1 per cent. Reckoned year-on-year, aggregate profitability is likely to contract to 10 per cent at the PBDIT level and 4.3 per cent at the net level.

The sharp fall in the commodity prices, clogging up of inventory lines, liquidity crunch faced by the Indian banking system, drying up of other fund sources and uncertainty with respect to demand prompted the Indian corporates to either stall or defer their capex plans and go slow on the fresh capex announcements. Projects worth over Rs.1.7 lakh crore were either deferred or stalled on account of financial crisis.

While the amount of shelving and deferring of investments has gone up this year, the same has not risen as a proportion of outstanding investments. The government has also increased the investments in the last two quarters. Thus, besides the visible efforts of announcing the stimulus package, the government is also trying to give an impetus to the economy by way of increasing its capital expenditure. Increased capex by the government together with lower commodity prices and softening of interest rates is likely to result in a sharp recovery in profits during the March 2009 quarter.

Sonal Bhatia
bsonal@cmie.com