Indian economy's growth 'feels' are finally set to come back

Even though Indian corporates’ bottomlines have been improving on account of the global fall in raw material costs, showing up in economy growth numbers as well, the growth ‘feels’ don’t seem to be there in popular perception. This is explained by the muted demand conditions in the economy – the coffers might be fattening up, but not because people are thronging to make purchases. Or at least they were not, till now.

As per the RBI’s compilation of corporate results of 2,710 companies; quarterly sales finally turned a corner in Q4 2015-16, with a small growth of 2.3% yoy. In comparison, sales had shrunk by 3.4% during the previous quarter and 4.7% during the corresponding period of the previous year. 

Further, a zoning into various segments of sales growth shows that the recovery is broad based, suggesting that all segments are showing demand improvement. However, IT services has seen the largest increase in sales growth of 14.1%, followed by manufacturing companies at 0.9% and services ex-IT at 0.4%. However,  compared with the corresponding period of the previous year, the biggest gains have been seen for the manufacturing sector, which was the only sector to witness a decline then.  Services ex-IT, notably, has shown a slow down in sales growth from 10% last year.

An additional boost to corporate performance is on account of the fact that expenditure levels across segments continue to show a decline from last year, though the extent of decline is reducing. For Q4 2015-16, expenditure decline was at 1.6% compared to 6% during Q3 2015-16.  The increase in sales, however, more than made up for the reduction in extent of expenditure decline as net profit growth actually accelerated to 16.4% from an already robust 15.9% during the previous  quarter. There was, however, likely a base effect at play here as well since there had been a steep decline in net profits during the same time last year.