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Economy & Nation Exclusive
Corporate India takes a huge hit in the June quarter, net profits decline by almost half

Increased cost, inflation and policy paralysis played havoc on Corporate India’s earnings, especially those of government companies as margins shrank by almost half despite a robust increase of 15% in sales

 
This first quarter earnings season has been very lacklustre so far. We now have the data of 667 companies in the Moneylife sample of 1,150 companies whose June 2012 quarterly results have come out. The aggregate sales of these companies, for the quarter ended June 2012, increased by 15%, year-on-year (y-o-y), to Rs 8,72,904.89 crore from Rs7,57,187.21 crore. Good news, right? Operating profits has fallen sharply by 17%, y-o-y, to Rs85,490.73 crore (June 2011: Rs1,03,001.29 crore). But it is net profit, or the bottomline of Corporate India, which has suffered the severest blow. Net profit plummeted by almost half, a whopping decline of 41%, led mainly by the government-owned companies. Last year net profit was Rs54,310.96 crore while this year it is much lower at Rs 32,012.67 crore. Thus, there’s a lot to worry now. 
 
Net profit margins have shrunk. Last year, margins of Corporate India were recorded at 7.17%, but now it has declined by 3.50 percentage points (350 basis points) to 3.67%. This is a frightening fall. It is pertinent to note that over 60% of the companies (405 companies) have witnessed shrinking margins this quarter over the corresponding quarter last year, while over 80% of the 667 companies saw a boost in their sales in this quarter over the corresponding previous quarter. This shows that the increase in sales has not helped businesses and economic challenges remain. Inflation and higher cost pressures have eroded margins, putting many companies on the back-foot, in wait-and-watch mode, as government stymies policy measures to improve the economy. 
 
Will Corporate India’s fundamentals improve or get worse?
 
 
 
 

User

COMMENTS

Ramesh Poapt

5 years ago

Decline in net profit of corporate India-may not be a bad news, if analyzed differently/correctly!

R Balakrishnan

5 years ago

Not to worry. A venerable institution like CMIE has forecast profit growth of 24.5% for this year. Maybe in the last quarter, profits will go up a thousand times.

REPLY

Indi Banker

In Reply to R Balakrishnan 5 years ago

But our Shri 'Dhritrashtra' says nothing to worry. Most probably his eyes are covered by some designer 'Italian' handkerchief.

Equity fund flows: Another round of exodus in July

Despite a pick up in sales and two new fund offers (NFOs), equity funds failed to register a net inflow due to heavy redemptions

 
The two new fund offers (NFOs) launched in July 2012 bought in as much as Rs306 crore. This took the total sales for the month to Rs3,311 crore, according to data released by the Association of Mutual Funds in India (AMFI). However, redemptions increased by 27% over the previous month to Rs4,260 crore leading to a net outflow of Rs949 crore. The Asset Under Management (AUM) of equity schemes came down by 0.79% or Rs1,416 crore to Rs1.78 lakh crore over the one-month period while the Sensex declined by 1% during this period.
 
The last seven months have witnessed a total outflow of Rs4,548 crore with just two months of positive inflows. In the same period there have been as many as six equity NFOs launched, bringing in a paltry Rs410 crore. Investor participation is clearly declining. Total sales for the first seven months of 2012 amounted to Rs24,448 crore, down by 34% from Rs36,781 crore in the previous year.
 
Recently the Securities and Exchange Board of India relaxed the Know Your Customer (KYC) norms for mutual fund investments up to Rs50,000. As per the new norms an investor can invest up to a ceiling of Rs50,000 per year in each Asset Management Company (AMC) without a Permanent Account Number (PAN) compared to the earlier norms which had a limit of Rs50,000 across all AMCs. These norms are also applicable to Systematic Investment Plans (SIPs) of mutual funds, as well. Experts have been quoted in media reports saying that this move will benefit the industry. But how many small ticket investors would want to put their savings in a risky asset class as equities.
 
A few months back Moneylife had pointed out that there are no takers for SIP (SIP: No takers?). There have also been news reports that investors have discontinued at least 1.66 million SIP accounts in 2011. Why have so many investors discontinued their SIPs? Therefore, the problem does not lie only in the KYC norms, there are other factors which the regulator has failed to find out.
 
There are also reports that the regulator will consider to reintroduce the 2% entry load to revive mutual funds at its board meeting on 16th August. It's been almost three years since SEBI abolished entry load. Noticing a big drop in inflows, sometime ago SEBI decided to introduce a transaction fee. This too didn't go down well with distributors which according to a consulting firm only 16% of distributors have opted for charging transaction fee. However, from the disclosure of commissions of distributors one can see that their commissions have actually increased. (Mutual Fund Commissions: Foreign banks lead once again, other top distributors lag behind). Therefore will the reintroduction of entry load help much? Big distributors will find ways and means for them to earn commissions and survive. But who will take care of the investors needs? SEBI would have to restore investor confidence first by creating stringent norms against mis-selling and other malpractices.
 

 

User

COMMENTS

Vikas Gupta

5 years ago

I totally agree with MoneyLife that first of all, misselling has to be strictly stopped.

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