Corporate revenue and profit growth decline in fiscal third quarter
The initial trend in the December quarter results shows a slowing down in annualized revenue and profit growth, with sequential stability in the operating margin. Revenue of a sample of 240 companies that have declared financial numbers so far increased at a rate of 18 per cent, the lowest in seven quarters, according to ET Intelligence Group. Net profit grew by a modest 0.8 per cent, the slowest in at least nine quarters. Operating margin improved sequentially to 20.7 per cent in the December quarter following a moderation in commodity prices. However, it remained weak compared with the year-ago level of 24.7 per cent.
Why it’s important: Although analysts had projected a more optimistic revenue and profit growth in the three months to December, higher interest expenses and depreciation costs took their toll, moderating expectations. It was somewhat offset by easing commodity prices.
Early bird results show little reason for cheer except for finance sector
The early bird results for the fiscal third quarter have indicated a further slowdown in corporate earnings and revenue growth, according to a Business Standard analysis. The combined net profit of 225 early bird companies across sectors was up 2.5 per cent on year in the three months to December, the lowest increase in 10 quarters. Combined net sales rose 18.2 per cent, the slowest in seven quarters. The banking, financial services, and insurance sector, once again led earnings growth, aided by an improving credit offtake, higher interest rate and stable asset quality. The combined net profit of the segment in the early bird sample was up 25.6 per cent on an annualized basis, better than the rest of corporate India but the smallest increase in five quarters.
Why it’s important: The early trends show that the post-pandemic surge in revenues and profits has ended. The rise in interest rates is eating into corporate earnings and there is unlikely to be any relief in the next few quarters.
Government may announce universal enterprise IDs for small companies
The central government is working on a universal enterprise ID system to help strengthen the credit ratings of small companies, according to an internal document. Under the proposal, which may be announced in the upcoming budget, a group of micro, small and medium enterprises will form a special purpose vehicle to borrow from banks under a single transaction and then lend to its members. Credit rating agencies are also expected to come up with new models to assess the creditworthiness of MSMEs.
Why it’s important: Small businesses are the engines of the Indian economy. Differentiated credit norms for easier loans for them would go a long way to revitalize the sector.
Policymakers consider steering clear of populist measures in upcoming budget
Ahead of the 2023-24 budget, the government could be comfortable with a GDP growth of 6-6.5 per cent and shift its focus on fiscal consolidation to ensure that the sovereign cost of borrowing does not become prohibitively expensive in a high-interest rate environment, officials said. Those aware of deliberations between the Prime Minister’s Office and the finance ministry said while the budget would look to strike a balance between infrastructure investment and welfare schemes, it is unlikely to be populist.
Why it’s important: It is a surprising development as this is the last full-year budget of the present government before the country heads towards parliamentary polls in 2024. Budgets ahead of general elections typically tend to be populist.
Income-tax regime with no exemptions could see changes on muted uptake
Since its rollout, less than half a million Indian taxpayers have opted for the new income tax regime that offers no exemptions, prompting a review to see if measures are needed in the budget to promote its adoption. The scheme offers lower tax rates of 5, 10, 15, 20, 25 and 30 per cent, with the peak rate applicable to incomes of more than Rs 15 lakh. The regular regime with exemptions has three slabs (5, 20 and 30 per cent) and the peak rate is levied on incomes of more than Rs 10 lakh. About 75.2 million income-tax returns have been filed in the current assessment year.
Why it’s important: The government had expected higher traction for the exemption-less income-tax regime in line with the uptake in the new corporate tax regime. Perhaps a shift to a simpler regime would help.
Start-ups and IT firms may retrench up to 20,000 people in next six months
India’s IT and start-up sectors may retrench as many as 15,000 to 20,000 employees in the next six months, industry insiders said. Recruitment consultants expect fewer hiring mandates in the months ahead and have decided not to enter new businesses for now. In 2022-23 so far, the two sectors have laid off more than 20,000 employees, including 1,400 in the first two weeks of January.
Why it’s important: Tech firms are battling slowing demand in the main markets in the West and start-ups are facing a funding winter that heralds the end of easy money. The combination of adverse factors is likely to tame the hiring frenzy of the past two years, which have already inflated staff costs.
Apple’s iPhone exports from India breach $1 billion in December
Us tech giant Apple has become the first company from India to export smartphones worth $1 billion (Rs 8,100 crore) in a month, meeting the milestone in December, which was also a record month for the industry with mobile phone exports of over Rs 10,000 crore. Apple and Samsung are the leading firms for exporting cellphones from India. Apple overtook Samsung to become the top exporter in November and achieved the $1 billion mark in December, government officials said.
Why it’s important: Apple’s contract manufacturers have taken advantage of India’s production-linked incentive scheme for smartphones, and the results have started showing.
Credit raters ask Reserve Bank to spell out recognition criteria for defaults
Credit rating agencies have asked the Reserve Bank of India last week to come up with the default recognition criteria, which determines how missed or delayed payment in one kind of debt impacts the rating of other debt raised by a borrower. With the central bank and the capital market regulator differing on how different kinds of debts would be rated in the financial market, the raters want the central bank to issue a public statement on recognition of default.
Why it’s important: It is crucial to have stable and predictable norms to calculate the impact of loan defaults on a company’s credit ratings, particularly in the rising interest payments scenario.
Reserve Bank to appeal court judgement on quashing Yes Bank’s bonds write-off
The Reserve Bank of India will likely appeal the Bombay high court ruling that quashed the regulator and Yes Bank administrator’s decision to write off additional tier-I bonds to save the lender from collapsing. This high court has granted six weeks to Yes Bank to file its appeal against the order in the Supreme Court. The banking regulator had approved the Yes Bank administrator’s March 2020 decision to write off the AT-I bonds that aggrieved bondholders, who went to court.
Why it’s important: The bonds write-off was part of a restructuring plan to save Yes Bank depositors from losing their savings. The court decision could have a huge sectoral impact.
Elon Musk to offer an ad-free Twitter to subscribers willing to pay more
Maverick billionaire Elon Musk has said that he will revamp the size and frequency of advertisements that appear on Twitter and plans to roll out a higher-priced subscription model that allows for zero ads. He didn’t give details on what will be done or how the new subscription model will be priced. Musk has earlier tried to diversify the social media platforms business away from advertising revenues, pinning his hopes on revenue from Twitter Blue subscriptions.
Why it’s important: Twitter is struggling to slow down losses in its advertising revenue as brands pull back from the site amid concerns about its moderation policies ever since Musk took over the firm in October. It remains to be seen whether his fresh plans will work.
