Corporate Performance of Manufacturing Sector Shows Improvement

The corporate results at the end of the second quarter of fiscal year 2017 brought a reason for cheer for the manufacturing sector which saw an improvement in both its bottom-line and top-line. The sector, which was buoyed by a significant fall in inputs costs following the collapse of global commodity prices, registered a sharp pickup in profitability growth in 2QFY17 as compared to the same quarter a year ago. Worryingly, both bottom-line and top-line of services sector firms continued to remain weak so far. The analysis factors in the financial performance of a balanced panel of 1670 manufacturing companies (excluding oil and gas companies) and 948 service firms extracted from the CMIE’s Prowess database.

Bottom-line of firms on an aggregate basis registers a stellar performance in 2QFY17

In 2QFY17, the bottom-line of the manufacturing firms registered a growth of 28.3 per cent as compared to 13.6 per cent in the same quarter a year ago. Net sales of manufacturing firms also grew by 3. 9 per cent in 2QFY17 as compared to a contraction of 1.4 per cent in 2QFY16. Thanks to the slump in commodity prices in the past few years, manufacturing firms were able to improve their profitability fairly easily. But they no longer have this advantage at present. In fact, after the recent decision by the Organization of the Petroleum Exporting Countries (OPEC) to cut production, Brent crude futures rallied by 15 per cent in the week till 2nd December, posting their biggest weekly gain in over five years. Moreover, the demonetisation move of the government is also expected to hit both sales and profitability of firms going forward.

In contrast, net sales growth is recovering slowly

Service sector performance has remained lackluster since last few quarters. Net sales growth of service sector firms contracted by 4.2 per cent in 2QFY17 as compared to 8.1 per cent growth in 2QFY16, reflecting in part the lack of ample demand in the economy. The After several quarters of disappointments, the September quarter results of Indian companies were slightly ahead of expectations. However, before any celebrations could kick in, the companies have been hit by the double whammy of a Donald Trump presidency and the Indian government’s demonetisation of high-value currency notes.

Efforts are in force by firms to improve their own proslowing demand in the external markets has been doing no good either. In contrast, PAT growth of service sector firms improved to 5.3 per cent in 2QFY17 as compared to contraction of 4.9 per cent in the same quarter in the previous year. Once again, the profitability of service sector firms was cushioned by falling input prices.

After several quarters of disappointments, the September quarter results of Indian companies were slightly ahead of expectations. However, before any celebrations could kick in, the companies have been hit by the double whammy of a Donald Trump presidency and the Indian government’s demonetisation of high-value currency notes.

Efforts are in force by firms to improve their own proslowing demand in the external markets has been doing no good either. In contrast, PAT growth of service sector firms improved to 5.3 per cent in 2QFY17 as compared to contraction of 4.9 per cent in the same quarter in the previous year. Once again, the profitability of service sector firms was cushioned by falling input prices. duction efficiencies and employ cost effective measures to tide over the current difficult times. Simultaneously, there are also expectations of some serious economic reforms, some of which have already come in form of necessary rate cuts by the RBI, that would elevate the economy, help pick up sales and raise the profitability for the Indian corporate in the months to come.

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