The performance of Nifty 50 companies in the September 2017 quarter indicates that India Inc is yet to steady itself from the double-whammy of the Goods and Services Tax and demonetisation. Though year-on-year growth in the September quarter has improved compared to the June quarter, this growth was led by just a few companies, and most of them were not directly impacted by the two big major reforms. Also, overall performance in the first half was lower than in FY17, due to disruptions caused by GST (destocking, restocking) following demonetisation.

According to data provided by Capitaline, Nifty 50 companies (excluding financial services and oil & gas) reported a strong comeback in the September 2017 quarter with topline growth of 11 per cent y-o-y compared to 7 per cent in the June quarter. Even profitability has shown stark improvement with growth in operating profit and adjusted net profit of 14 per cent and 7.4 per cent, respectively, compared to 2.4 per cent and 4.1 per cent, respectively, in the previous quarter.

Criteria of analysis

Financial services are excluded for the analysis as they are reported in a different format unlike manufacturing companies, and also because of non-performing assets, which affect profits differently every quarter. Oil & gas companies are also excluded for the analysis due to government subsidies. These two sectors comprising 14 companies in the Nifty have a total market capitalisation of ₹24.5 lakh crore while the rest 36 companies’ m-cap stood at a much higher ₹49 lakh crore.

However, improvement in the performance has been led by a few companies, such as Reliance Industries, Tata Motors, and Maruti Suzuki, followed by metals and cement. Also, out of 36 such companies (excluding financial services and oil and gas), 18 have shown y-o-y growth improvement in Q2 (overall) compared to Q1. Hence, the glass is still half empty.

Metal firms such as Vedanta, Tata Steel and Hindalco have helped improve the overall performance to a large extent, thanks to rise in commodity prices. Excluding metal companies, growth in net sales, operating profit and net profit come down to 9 per cent, 12 per cent and 3.8 per cent, respectively. The trend of y-o-y improvement versus the June 2017 quarter, however, remains the same.

In the first half of FY18, net sales of companies excluding metals, financial services and oil & gas have risen at 6.8 per cent y-o-y, whereas the same rose 8.5 per cent in FY17. Operating profit grew by marginal 0.8 per cent while net profit declined 2.3 per cent compared to growth of 4.9 per cent and 2.6 per cent, respectively, in FY17.

Crude price worries

Analysts have cautioned about deterioration in financial performance, going ahead, due to rising crude prices and inflation, which will worsen the macroeconomic environment and dim the prospects of a rate-cut. Kotak Institutional Equities pointed out in its review note that India’s macro outlook has dimmed with likely higher current account deficit, gross fiscal deficit and inflation due to higher crude prices and weaker-than-expected tax revenues.

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