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Wednesday, December 01, 2021

Corporate India witnessed strong performance in second quarter, even as demand and supply side issues pose challenges

As households rebuild their balance-sheets, demand is unlikely to perk up materially. Weak household demand and low capacity utilisation, in turn, signal subdued private investment.

By: Editorial |
Updated: October 19, 2021 9:06:01 am
Indicative of this continuing healthy performance, corporate tax collections have also been fairly robust. In fact, collections have grown around 50 per cent in the first five months of the current financial year as compared to the same period in 2019.

Going by the early bird results, India Inc continued to witness healthy growth in the second quarter of the ongoing financial year. Both IT majors Infosys and TCS have posted strong numbers recently, as have the real estate and retail companies who have declared their results so far. HDFC Bank has also posted numbers higher than what the street had expected. For the entire sample of firms who have reported their numbers so far, both net sales and profit have risen, not only in year-on-year terms but also in quarter-on-quarter terms. Indicative of this continuing healthy performance, corporate tax collections have also been fairly robust. In fact, collections have grown around 50 per cent in the first five months of the current financial year as compared to the same period in 2019.

At a broader level, most economic indicators, barring those for the services sector, seem to have either recovered or are near their pre-pandemic levels. The Nomura India Business Resumption Index rose to an all-time high of 108.8 for the week ending October 17, after averaging 102.2 in September. The index of industrial production was up 3.9 per cent in August 2021, as compared to its pre-pandemic level of August 2019, while GST e-way bill generation stood at 6.79 crore in September — marginally lower than the peak. Similar trends are observed in non-oil exports, electricity, and railway freight. With vaccinations on the verge of crossing the 100 crore mark, and the government lifting some of the remaining restrictions — it has now allowed airlines to operate without any capacity constraint — activity levels in these select services could also see a pick up. Moreover, the ongoing festive season is likely to provide a fillip to consumption — the GST e-way bill data for October points to this.

But there are areas of concern due to both demand and supply side issues. On the supply side, while the shortage of chips is impacting passenger vehicle production, the absence of pick-up in electricity generation, commensurate to a pick-up in demand, due to coal shortages, is a risk to the growth momentum. On the other hand, subdued demand for two-wheelers signals continuing distress among low income households. Consumer confidence remains low, and private consumption continues to be weak. As households rebuild their balance-sheets, demand is unlikely to perk up materially. Weak household demand and low capacity utilisation, in turn, signal subdued private investment.

This editorial first appeared in the print edition on October 19, 2021 under the title ‘Good auguries’.

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