The aggregate picture

S. Vaidya Nathan

WITH the October-December 2000 quarter earnings announcement set to begin in a full-fledged manner from tomorrow (only a few results have come in the first week), the previous quarter performance may provide a good benchmark.

Though the year-on-year comparison is popular, in the context of the gradual slowing down of the economy, a quarter-on-quarter comparison would also be significant this time around. In this backdrop, here is a snapshot on how 2,500 companies fared in the July-October 2000.

* Sales rose 19.4 per cent compared to 1998-1999 to Rs 2,25,000 crore.

* The corporate sector as a whole appears to have had expenditure under some check and in line with trends in sales. Operating expenditure rose by around 20 per cent.

* But the higher base for sales has ensured and 0.6 percentage point hike in costs have led to just a 17.1 per cent hike in the operating profits.

* `Other income' remained largely flat with a growth of just 3.7 per cent. To some extent, this may be on account of the volatility in debt markets which might have shaved a few hundred crores of treasury operations.

* As a percentage of earnings, `other income' fell to 21.32 per cent against 24.79 per cent in the corresponding quarter of 1998-99 and 25.63 per cent for the full year 1999-2000. To some extent, this is a positive spin on the quality of the earnings stream as well as the sustainability levels.

* The decline in the interest costs as a percentage of net assets suggests that companies have been more efficient in fund management. Interest outgo marginally rose by 3.7 per cent to Rs 7,700 crore.

* The 7.7 per cent rise in depreciation to Rs 8,050 crore is, perhaps, a pointer to the slack investment activity in the economy. Even in 1998-99, in the corresponding period, the depreciation charges were higher in terms of growth. But, then, it may have been due to tax considerations which saw companies change methods of depreciation. This trend does not augur well for the growth prospects in the listed companies.

* Perhaps in another confirmation of the slowing down of investment activity, the provision for tax rose sharply by around 40 per cent. This suggests that companies may well be having smaller quantum of tax shelter by way of depreciation under the income tax laws as well.

* The post-tax earnings showed a growth of 20.6 per cent to Rs 27,150 crore.

* The equity base remained largely unchanged. At Rs 51,727 crore, they showed a rise of just 1.4 per cent. Perhaps one more pointer to slack investment demand.

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The tables show the performance numbers for the 2,500 companies and the key profitability parameters. There is a slowdown in the economy, especially in key sectors such as automobiles, engineering, cement (though price are up) and steel (where prices are also down). If the numbers for the October-December 2000 quarter come out at the same levels, it would be good for the markets.

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But that appears unlikely. A 20 per cent growth rate _ here, one has to look at the fact that the rates could have been much lower but for the good show by the technology sector _ may be unlikely. The performance of the non-tech sector may well be under scrutiny as price-earnings multiples have run up sharply in recent months. In the short term, there may be sharper jerks to prices in the technology sector, based on the surprise element and its direction (positive or negative; last time, there was a high degree of divergence).