India Inc shows better growth in Q1 net profit

Mumbai: The net profits of companies in the Sensex and Nifty for the first quarter FY17 have shown modest improvement. For March 2016, the BSE Sensex 30 companies showed profits of Rs 46,246 crore against June 2015 Rs 44,032 crore. The adjusted profit for June 2016 was Rs 46,515 crore and estimated Rs 45,149 crore.

In the case of the NSE Nifty 50 companies, Q4FY15 profit was Rs 51,246 crore against Rs 51,844 crore in  Q1FY16. The adjusted profits for quarter ending June 2016 were Rs 55,227 crore and the estimated profits were Rs 53,686 crore.  

A portion of the improvement comes from non-operating factors, such as non-interest income in the case of banks or lower depreciation rate and higher other income among others for non-finance companies, according to Kotak Institutional Securities.

Earnings reductions are broad-based but not significant, it says. It  projects FY2017 and FY2018 net profits of the Nifty-50 Index to grow 14.4 per cent and 20.7 per cent, not very different from the start of the results season.

The quality of earnings growth is a bit disappointing with about 37 per cent of the incremental earnings coming from the banking sector partly due to lower credit costs of the PSU banks and another 11 per cent from metals and mining sectors whose profits are bolstered by anti-dumping duties.

Several large companies (PSUs) are yet to report as the regulator has given companies an additional month to comply with the new accounting standards applicable from April 1, 2016.

However, investment challenges persist due to high  high slippages in Q1FY17 too and  weak domestic order booking for industrial companies. Even though 74 per cent of over 300 CFOs of companies comprising of small to large scale companies, surveyed by Deloitte, are optimistic about increase in revenues in the next one year, they were almost equally divided on whether it was the right time to take risks given the uncertain global economy and growth being concentrated in certain sectors of the domestic economy.

The outlook on operating margins looks uncertain wherein 48 per cent of CFOs expect increase in margins while 52 per cent expect reduction or no change in margins. In capital expenditure, 58 per cent  of the CFOs believe their capital expenditure will increase over the next one year giving credence to the fact that there were some green shoots of recovery in the investment cycle.