As India Inc shows revival, NaMo’s rivals may see their GST balloon punctured

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India Inc, Indian Oil Corporation, Reliance, Reliance GRM, Gross Refining Marging, Arun Jaitley, PSB, Public Sector Bank, HPCL, Crude Oil Price India, NaMo Administration, Demonetisation, Remonetisation, GST, GST Council, Depreciation, Agrochemical and Fertilizers Companies India, Exclusive News on Public Sector PSUs India, Exclusive News on Bureaucracy Government India, PSUs news India, Narendra Modi, Narendra Modi's Administration

NaMo’s political rivals may be heading for a greater electoral shock in their attempt at exploiting GST issues than what they did on the demonetization/remonetization issue.

That’s because India Inc, after its distressing performance in the June quarter owing to the problem of remonetization and simultaneous transition to GST, is seen returning to normalcy as indicated by the September quarter results of 700-odd companies.

Research shows that the adjusted net profit for these companies grew 13.45 percent in the three months through September 2017 over the September 2016 quarter (year-on-year).

The disruptions caused in the process of introduction of the GST, on the top of remonetization hangover, resulted in only 1.08 percent year-on-year growth in net profit for these companies in the June 2017 quarter.

The double-digit profit growth of 13.45 percent in the September quarter has reportedly been achieved despite a mere 4.5 percent growth in other income (from non-operational activities such as interest income) and a 10-15 percent acceleration in interest, depreciation and tax expenses.

This implies that the profit growth has been backed by a strong show at the operating level. Operating profits grew 15.55 percent year-on-year.

Restocking of inventory post-GST and adequate remonetizations, as well as the onset of the festival season, are said to have helped consumer-oriented sectors such as apparel, durables, auto, gems, and jewelry deliver much higher profit growth than in the previous quarter.

At the same time, good Monsoon and higher Kharif MSPs are seen to have improved rural sentiments.

The slight improvement in rural sentiment boosted the performance of agrochemical and fertilizer companies. Refineries, too, did well, backed by better refining margins and inventory gains from rising crude oil prices. For instance, the largest refiner, Indian Oil Corporation (IOC) reported a rise of 18 % in net profit to Rs3,696 crore net profit for the second quarter of 2017-2018. HPCL doubled its profits to Rs 1,735 crores.

Reliance’s gross refining margin (GRM), or profit earned on each barrel of crude processed – a key profitability gauge for a refiner – came in at $10.1 per barrel for the three months to Sept. 30, accelerating its lead over the regional benchmark Singapore GRM.

Professionally-managed real estate, infrastructure, and metals companies also harvested a better margin. After the stagnation of the previous quarters, banks and finance companies are seen to be turning around and they may post better results in the quarter ending December 2017.

Finance Minister Arun Jaitley’s statement made on November 12 at a PSB Manthan, attended by PSB heads, that the government has decided to inject more capital into state-owned banks to strengthen the banking system and spur economic growth can’t but boost sentiments further in the banking and finance sector.

In October, the government had unveiled a Rs 2.11 lakh crore two-year roadmap to bolster public sector banks hit by non-performing assets (NPAs). The roadmap includes recapitalization bonds, budgetary support, and equity dilution to restore health to the PSBs. At the same time, consolidation of the PSBs, through a reduction in their numbers by way of mergers, would also lift the PSBs into a growth trajectory.

By M K Shukla and Rakesh Ranjan

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