Net sales of companies listed on Indian bourses in the quarter ended December 2021 were a handsome 25.4 per cent higher than they were in the same quarter of 2020. The December 2020 quarter was still reeling under the impact of the Covid-19 induced lockdowns and so the handsome growth of the current quarter reflects, at least partly, a recovery from a low base. In fact, it reflects a recovery from two years of sluggish topline growth. Net sales compared to a year ago, were a mere 0.3 per cent higher during the December 2020 quarter and had shrunk by 1.7 per cent in the preceding, December 2019 quarter. Sales were shrinking even before Covid hit the economy.

The superlative growth in net sales of December 2021 was driven by non-finance companies. Financial companies recorded a mere 5.2 per cent increase in income from operations. This is normal. Finance companies have always registered mid-single-digit growth in topline. But, they record handsome growth in profits. Non-finance companies on the other hand saw a massive 30.9 per cent increase in net sales year-on-year in the December 2021 quarter.

This was the third consecutive quarter when non-finance companies have recorded superlative topline growth rates. In the June and September 2021 quarters, the year-on-year growth in net sales of non-finance companies was 59.4 per cent and 36.7 per cent, respectively. But, these growth rates were apparently so impressive because they came from a highly shrunken base net sales had declined by 38.8 per cent and 10.3 per cent in the June and September 2020 quarters, respectively. In the December 2020 quarter, sales did not shrink. Sales expanded, albeit by only a whisker. Therefore, growth in the December 2021 quarter did not benefit from a low base like the preceding two quarters did.

Growth in net sales of non-finance companies in the December 2021 quarter was aided by inflation.

A sharp increase in commodity prices aided the growth of sales. While nominal sales grew by 30.9 per cent, inflation-adjusted sales, or real sales, grew by a far more modest 7.1 per cent. An inflation-adjusted 7.1 per cent growth in net sales is close to the long-term average. But, a 30.9 per cent nominal growth is thrice the long-term average. The December 2021 quarter is therefore a big beneficiary of prices.

The difference between nominal and real growth is usually around 2-3 per cent. During half the 60 observations since the quarter of March 2007, the difference was between -3.3 and 7.7 per cent. In only 5 per cent of the quarters, the difference was more than 11.5 per cent. In the December 2021 quarter, the difference was a massive 23.8 per cent. So, prices have played an unusually big role in the topline growth of non-finance companies in the quarter of December 2021.

The impact of prices on sales is best seen in the case of crude oil and natural gas companies. This is a set of ONGC and Oil India and two smaller companies. Their combined sales in December 2021 were 68.2 per cent higher than in the year-ago quarter. But, after adjusting for price increases, the sales growth drops to -1.2 per cent. So, all the growth was just price increase. Implicitly, volumes shrunk.

The impact of the recent increase in crude oil prices (compared to a year-ago prices) is seen in the sales of crude oil companies and also in the sales of petroleum products companies and several other downstream manufacturing companies

Sales of petroleum refining companies grew by 60.5 per cent. But, all of this was the effect of price inflation. Inflation-adjusted sales were down by 6.1 per cent. Crude oil and petroleum products companies together account for a substantive 28.5 per cent of total sales of all non-finance companies. Their performance, and in particular the role of price inflation in their sales growth, has a significant role in the overall growth in sales of all non-finance companies.

Even sales of metals companies were driven largely by price inflation. Sales of steel companies grew by 35.8 per cent year-on-year, in the December 2021 quarter. But, inflation-adjusted sales grew by a mere 5.2 per cent. Similar order of magnitudes can be seen in the case of pig iron and sponge iron sales. The difference is less stark in the case of non-ferrous metals. In fact, aluminium and aluminium products companies registered a robust 20.6 per cent increase in inflation-adjusted sales, implying robust offtake of volumes.

Cement companies recorded a weak 5.2 per cent growth in nominal sales. All of this was price driven as the inflation-adjusted sales were down by 1.7 per cent. Nominal sales of paints companies grew by 23 per cent but inflation-adjusted sales grew by only 5 per cent.

Financial statements of listed companies when juxtaposed with appropriate price indices suggest that petroleum companies grew their sales entirely on the basis of price inflation; metals companies and construction materials companies also saw their sales being lifted largely by price inflation. The analysis also suggests that consumer companies did not benefit similarly. Price transmission to final household consumers was apparently tougher.

Sales of consumer goods companies grew by 14.6 per cent in nominal terms. In real, inflation-adjusted terms they grew by 10.3 per cent. Prices helped, but not as much in the case of petroleum, metals and construction goods. Automobile companies were worse off. Nominal sales grew at a rather modest 5.6 per cent and real sales grew by an even more modest 2.4 per cent.

Petroleum prices have risen much higher in the current quarter compared to the past. Further, given the war in Ukraine, prices of non-petroleum commodities are also likely to remain high. Inflation may therefore continue to drive sales for some time.