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India Inc.: On road to revival - Views on News from Equitymaster
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  • Sep 3, 2003

    India Inc.: On road to revival

    India is one of the fastest growing economies in the world. In fact, at an expected growth rate of over 6%, it is second only to China, which continues to grow at over 7%. Moreover, our Tenth Plan has targeted an annual GDP growth rate of 8%. Can this be achieved? Or is it too optimistic a target? Well, if we just look back at the performance of India Inc. over the last 8 quarters, it leaves little doubt that India is certainly on a higher growth trajectory. And if it continues to perform like it did in the last couple of years, the 8% annual GDP growth rate target certainly seems achievable!

    Source: RBI Annual Report, 2002-03

    Having a look at the above chart would definitely make any Indian proud. The resilience that the Indian economy has shown in the recent past vis-a-vis many other global economies is praiseworthy.

    Coming back to the chart above, in the last 8 quarters, profits growth has outpaced topline growth, while this may mean a definite improvement in the profitability we need to delve deeper and understand that this improvement may not have been necessarily due to improvement in efficiencies but due to more efficient utilisation of financial resources. Indian companies have been helped to a great extent by the fall in interest rates, which has helped it to significantly pare interest expenses, whether it is on long-term debt or for short term (i.e. working capital needs).

    Operating efficiencies on the other hand may not have improved as much as one would like them to have as indicated by the graph above, where expenditure growth has moved in tandem with the topline growth. However, we also need to keep in mind the fact that the sample set taken by the Reserve Bank Of India (RBI) is quite large (over 1,200 companies on average) and if one were to analyse the BSE-100 companies on these parameters, definite improvements in operating efficiency may have been seen. However, we believe that improvement in operating efficiencies may just be around the corner, as companies are anticipating increased demand in the future and are, therefore, investing in increasing capacities, or putting right infrastructure in place. Going forward, they would benefit from larger scale of operations. And as recent reports indicate, India Inc does have the cash to spend on these initiatives!

    All said and done, the underlying fact is that Indian corporate performance has been showing signs of revival, both from the perspective of topline and bottomline growth. Companies have become globally more competitive and rising exports vindicate this fact. The 'Made in India' tag is beginning to achieve recognition in international markets. This has come after many upheavals that the Indian corporate sector has faced in recent times. Even then, the growth story remains intact.



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