Indian companies are now reaping the structural reforms undertaken by the government. A survey done by Care ratings on 3,292 companies has revealed that the net sale in first quarter of FY 18 has grown by 12.8 percent. The operating profits of companies went up 20.4 percent despite the fact that expenditure rising 10.9 percent. The manufacturing companies are picking up after effects of demonetization and implementation of GST. The companies in banking and insurance have posted healthy growth even previously. Automobiles, capital goods, FMCG, IT, and metals companies are also growing given the rise in domestic consumption.
In recent years banking and finance industry has grown exponentially, riding on the crackdown on black money. The deepening of financial markets is easing up cash availability for companies to expand their operations. So, it’s a transparent circular flow in finance industry that is helping both financial services and the companies that need substantial amount of money for their operations. The credit has grown in recent months due Insolvency and Bankruptcy Code (IBC) implementation which brought back the loans to banks. The crackdown on black money through steps like demonetization, closing of lakhs of shell companies has compelled the people to invest in stock market for better returns. The good performance of finance companies is helping to put a good show.
Another sector which has shown good performance in previous quarter is Fast-Moving-Consumer-Goods (FMCG). The consumption has grown because the aftershocks of GST implementation are almost over. Businesses have adopted GST now and they are passing off the benefits of lower taxation to consumers. The lower tax rates on primary goods and services have led to increase in demands. Last month government reduced taxes on many consumer electronics items like Washing Machine, Refrigerator etc, this would propel further growth in consumption of these goods. Another reason behind growth in consumer demand is due to growth in rural consumption. The good crop in last season and positive weather forecast has helped in boosting rural demand.
The other sectors which have grown are pharma, telecom and metals. Telecom has grown due to increasing competition with the entry of Reliance Jio. The average time spent on calling has grown by double and data consumption has increased fourfold since Jio’s entry. The aggressive pricing by Jio has forced other players to lower the price and pushed small players out of the market. Pharmaceutical companies has grown due to rising disposable income and increased government sector in healthcare. Metals have also grown due to substantial increase in public investment in infrastructure sector.
The increase in operating profit will help the companies to expand their operation which will start the chain of activities leading to economic growth. As of now, top companies are posting double digit growth since last three quarters. If the pace continues then economy of the country could also post double digit growth in upcoming years. Achieving double digit economic growth for at least a decade has long been the dream of India but could not be realized due to unfriendly global conditions and implementation of necessary steps like demonetization and GST implementation. The growth slowed a bit due to these steps but they were necessary in keeping the long term goal and now fruits to these reforms could be plucked in upcoming years.
