Upbeat numbers

BS OPINION

According to the Business Standard Research Bureau's analysis of the first 144 results, sales show a robust aggregate rise of 16.1 per cent, compared to the same quarter last year, while net profits are up a handsome 34.27 per cent.

These are encouraging figures, and show that although agricultural production last year has been dismal, the Indian corporate sector is now resilient enough to be able to withstand the effects of a severe drought. In addition, the quarter also saw the truckers' strike and messy decision-making on (not) introducing the value added tax. So the results are commendable.

Several factors have made this possible. First, the government's extensive road building programme has had very beneficial effects not only on the consumption of cement but also on the transportation industry, with trucks and dumpers needed to carry the materials for road building.

Second, exports have been thriving, in spite of the appreciating rupee. Not only have traditional exports been doing well, but with the integration of Indian industry into the global production network, new opportunities have opened up in sectors such as auto ancillaries and pharmaceuticals.

Further, domestic demand has been spurred by the lowering of interest rates on the one hand and the expansion of retail credit on the other. The combined effect has been the tapping of latent demand in the housing, automobile and consumer durable sectors.

To some extent, this increase in credit has compensated for the lack of growth in rural incomes following the drought. Interestingly, the availability of credit has been accompanied by lower prices so far as consumer durables are concerned.

This is again a result of opening up the economy, which has led to increased competition and, consequently, lower prices for the consumer. That has opened up new possibilities for top-line growth.

Commodity prices have remained high, thanks to insatiable Chinese demand, and this has helped many Indian companies. And banks have been able to continue to boost their bottom lines by booking profits on sale of securities, thanks to the lower interest rates.

Of course, not everything is hunky-dory. The stock market has been disappointed by the results of the information technology companies after the latest Infosys figures gave new hope on tech stocks.

Billing pressures continue and technology spending is still to regain momentum, while the rupee appreciation hurts revenues. Downstream oil companies are expected to report lower profits on account of inventory losses because of lower petroleum prices.

The FMCG sector has been hit by anaemic domestic demand and the loss of market share to smaller players. Pharmaceutical companies catering to the domestic market have also not been doing too well.

But the first quarter results need to be viewed against the strong probability of a good monsoon, a better performance by the global economy during the second half of the year, and the revival of the capital markets, which should allow fresh investment.