Indian companies may have a long road ahead as they search for a revival in corporare earnings. An analysis by Mint shows that market analysts may be a tad too optimistic than ground realities.
About two-thirds of top companies have missed street expectations so far in the second quarter. Among 161 BSE 500 companies that have been tracked, 108 have reported below par results and only 53 managed to beat estimates.
Consumer goods sector has been the worst performing with all 13 companies that have reported results so far have been below estimates. This underlines the fact that demand is still weak. Auto companies are also struggling with 13 out of 16 companies missing sales estimates. Pharma is next with 13 out of 20 companies falling short of expectations.
On the profit front, companies have fared better--- out of 161, 86 companies have beaten estimates and 75 have missed the mark. Reduction in input costs is helping margins and hence translating into higher profits.
In an interview with CNBC-TV18, Rajiv Kumar, Senior Fellow at Centre for Policy Research, blamed the "pervasive and persistent demand deficiency" in the economy due to weak rural incomes and said demand is unlikely to perk up in the near future.
"I am afraid even the investment demand is unlikely to perk up," he said, adding that the finance minister should loosen the government's purse strings to compensate for demand via public spending.
"He should forget about FRBM limits for a while and pump-prime the economy and make sure there is larger disbursements by his ministry," he added.
Kumar said that schemes such as rural development, large-scale public housing or river clean-up.
"These will generate extra employment and create more wages and put money in the hands of the consumer. He can also looking at cutting taxes a bit," he "said. "I am not sure this will be a good Diwali for consumer demand."
Ami Shah, National Writer – Markets at Mint says that despite a growth in gross domestic product (GDP) in new series, not much growth is visible in sales or demand.
“Rural demand and demand for industrial goods has not picked up as expected,” she said adding that the key issue is rural demand.
Brokerages have high expectations as far as earnings are concerned and more earnings downgrades can be expected looking at the current scenario, she said.
Please watch video for the full interview.
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