Low oil prices may help cos improve performance: SBI report

Low oil and commodity prices are likely to help companies post better earnings numbers in the fourth quarter of the just-concluded fiscal, a SBI report said.

The report added that net sales are likely to rise at a lower pace than growth in operating profit margins during the period.

"The good thing is that Mudra has been a beneficiary of credit growth. Low oil and commodity prices are likely to help companies post better Q4FY16 numbers," the SBI Ecowrap report said here today.

Within industries, credit growth shows concentration risk in stressed sectors like iron and steel and select infrastructure credit, mainly power and telecommunication.

While operating profits may rise by about 5-6 percent, net sales are likely to rise at a lower pace than growth in operating profit margins. Cement, IT, auto manufacturers are expected to register better volume sales in this quarter compared to earlier corresponding quarter, it said.

The yearly SBI Composite Index for April 2016 has increased moderately to 52.2, a five-month high, compared to the last month's low decline of 49.5 due to better market factors, a SBI report said.

However, the monthly index declined as low as to 46.5 in April, an 18-month low, from a moderate growth 54.5 in March mainly due to seasonality. This indicates that recovery is still slow and patchy, the report said.

"We believe it is too early to rejoice at credit growth picking up. In FY16, the credit off-take (YoY) has indeed shown some signs of improvement and was at 11.3 per cent as on March 18. However, as per April 1 (figures) credit growth has declined to 10.2 per cent," SBI's chief economic adviser and general manager, economic research department," Soumya Kanti Ghosh said.

In fact, a large part of loans sanctioned in the year are takeover loans from other banks or financial institutions.

The point of concern is that the incremental lending has been mostly to the personal loan segment, particularly credit card (and also housing), the report said.

The research shows that growth in industry credit causes personal credit and not the other way round. This in turn implies that increase in personal loans alone is not enough to foretell increased economic activity.