Corporate India’s topline growth is expected to slowdown but earnings growth would be much faster in the second quarter of the ongoing financial year.

“Corporate India is expected to report a 16.3 per cent growth in sales revenues for quarter ended September 30, 2007. This is slower than the growth experienced in the past four quarters,” Centre for Monitoring Indian Economy (CMIE) said in its monthly review of Indian economy.

Robust demand

CMIE expects this slower growth to be the effect of high base as well as significant slowdown in sectors like software, steel, aluminium and aluminium products, automobile ancillaries, petroleum products, commercial vehicles, paper, sugar and fertilisers.

CMIE stated that sectors which are expected to clock a revenue growth of at least 25 per cent in second quarter of fiscal year 2008 include cement, construction, telecom, generators, material handling equipment, pumps, plastic, beer and alcohol, hardware, pig and sponge iron besides financial services.

Employee cost of India Inc is also expected to grow faster than revenues during the quarter. The impact of the appreciating rupee is expected to be felt in the export-oriented industries. Raw material cost, on the other hand, will report a slower growth than sales revenues.

Net margin

CMIE expects corporate India to hold on to its double- digit net margin that it achieved in the preceding quarter.
“This healthy margin is expected to come from a faster growth in sales revenues than in cost. Faster growth in sales is largely due to higher sales realisation,” it said.

“The higher sales realisations being enjoyed by corporate India indicate that demand is largely intact. Demand growth took a hit in some sectors that are sensitive to high interest rates. Given that interest rates are weakening, we expect demand to revive more robustly in the third quarter of fiscal year 2008,” CMIE said.