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Economic Survey 2020: In Q2, sales of 1,700 mfg companies contracted for the first time in 12 quarters

Demand conditions for the manufacturing sector weakened in Q2 of 2019-20,

January 31, 2020 / 03:10 PM IST

Sales growth of over 1,700 listed private manufacturing companies fell for the first time since the first time in three years in the second quarter of the present financial year.

"Sales growth (y-o-y) of over 1,700 listed private manufacturing companies contracted by 7.7 per cent in Q2 of 2019-20, after remaining in expansionary zone since Q2 of 2016-17," says the Economic Survey 2020, released on January 31.

"As per Reserve Bank of India (RBI) studies on corporate performance, demand conditions for the manufacturing sector weakened in Q2 of 2019-20, with a contraction (y-o-y) in nominal sales," noted the survey.

Profitability of these companies also suffered, albeit making a sort of a comeback in the second quarter of the present financial year. The net profit for the manufacturing sector contracted in the first quarter, mainly due to a production slowdown, but bounced back in the second.

"Net profit of corporate sector recovered in Q2 of 2019-20 and was 17.4 per cent," said the survey.

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The findings of the survey underline the slowdown in the economy. The distress was most visible among auto companies, who saw their sales slump by 19 percent in 2019. Steel companies were forced to go for maintenance shut-downs, as inventories piled up.

Not surprisingly, both sectors are included in the list of industries that slowed down the GDP growth. According to the survey, sectors that dragged the GDP down were petroleum products, iron and steel, motor vehicles and 'other transport equipment companies'.

Encouragingly though, there are some positive signs too.

"The capacity utilisation of India’s manufacturing sector remains stable at 73.6 percent in Q1 of 2019-20 as compared to 73.8 per cent in Q1 of 2018-19," the survey pointed out.

Also, the rate of growth of Gross Capital Formation (GCF) in industry registered a sharp rise from (-) 0.7 per cent in 2016-17 to 7.6 per cent in 2017-18, "showing upward momentum of investment in industry," said the survey.

To compute the GCF, the Survey used data on national income, consumption expenditure, saving and capital formation released by the NSO.
Moneycontrol News
first published: Jan 31, 2020 03:10 pm

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