India inc’s sales growth more than doubled in the last quarter of 2009-10 (27.5% in Q4 versus 12.7% in Q3). As a result, the Q4 GDP numbers show manufacturing grew a whopping 16.3%, a record for the last 8 quarters — for the full year, manufacturing grew 10.8% (3.2% in 2008-09). A sharp hike in global commodity prices meant that India Inc’s raw material costs rose 38% and, since they constitute 41% of sales revenues, this lowered profits growth to 35% (from 62% in Q3). Profit margins, however, continued to rise and are now at levels seen around a year ago. Investment levels continue to grow steadily, and India Inc’s order books doubled from Rs 52,546 crore in Q3 to Rs 1,00,081 crore in Q4. On a sequential (q-o-q) basis, GDP data show that, at 16.9%, investment levels have not grown faster in the last 8 quarters.
A possible area of worry for the next few quarters could be the lower level of growth of private consumption as well as government consumption. From 60.4% of GDP at 2004-05 prices in Q3, private consumption was down to 51.1% in Q4; government consumption was down from 13.1% to 11.2% in Q4. While the fall in government consumption is reflective of the rollback of the post-Lehman stimulus spending, the reduction in private expenditure cannot be explained except to say it may be a statistical quirk — in 2008-09, as well, private consumption fell on a sequential basis in Q4. Interest rates rising and credit markets tightening post-Greece will impact profits; though companies continue to sit on piles of cash (equal to a seventh of annual sales). Profit margins for PSU oil sector firms will fall once again as the government dilly-dallies on freeing pricing; and telecom firms are under stress with the 3G/BWA auction prices spiralling out of control — in the case of Bharti, the Zain acquisition adds to the immediate debt profile. With Q4 GDP up 8.6% and agriculture up 0.7% (it was -1.8% in Q3), however, most are looking forward to an even better quarter.
