The March quarter performance of India Inc failed to justify the claim by policymakers that the economy has bottomed out.

An analysis by institutional brokerage Espirito Santo, for instance, showed that sluggish demand pushed aggregate revenue growth to a multi-year low of 3.8 per cent for the quarter.

The financials of 400 companies, excluding those in the financials and energy space, were considered for the analysis.

The revenue growth for the quarter was lower than the 6 per cent growth in the previous quarter and 14.6 per cent growth during the same quarter last year.

Respite to margins

Operating margins for the quarter stood at 16.3 per cent, a tad lower than in the same period last year. However this was marginally better than the December 2012 quarter.

Softening of a range of industrial raw material prices globally provided some respite to the aggregate gross profit margins (gross profit is revenue minus raw material costs).

Despite the operating margin remaining flat, net profit slipped by 12 per cent for the quarter, sharper than in the previous year (3.8 per cent decline). This was largely due to higher interest outgo and depreciation.

The cyclical sectors such as materials, real estate and industrials dragged the aggregate performance. This was due to weak demand and high borrowing costs.

Sectors such as IT, utilities and consumer staples were an exception to this trend. Healthy growth in these sectors partially mitigated the weakness in cyclicals.

What to watch for

With sales growth slowing down, three factors would bear watching in the quarters ahead. Will the recent rupee depreciation offset the benefits from falling global commodity prices?

If so, this could have a negative impact on operating margins.

Will easing interest rates begin to show up in the numbers?

This will reduce the burden for highly indebted companies.

But a demand revival, that lifts sales growth for India Inc as a whole, will be the most significant driver of stock prices from here.

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