Corporate India is currently reaping the benefits of remarkably elevated margins and profits. The collective net profit for publicly listed companies achieved an unprecedented peak in the quarter spanning April to June 2023. This achievement can be attributed to a significant upswing in both operating and net profits due to a moderation in cost of raw materials. The expansion of profit margins has effectively counterbalanced the deceleration in revenue growth, which during the same time period, dipped into single-digit territory for the first time in nine quarters.

Sectors such as refining, oil exploration, automobiles (four-wheelers), capital goods and BFSI were the main contributors to margin expansion, while metals, chemicals, cement and IT services put pressure on profitability.

Within a subset of 2,937 listed companies (Source: Business Standard), the growth in revenue was a modest 5.3%. This figure represents the most lacklustre performance, in terms of sales/revenue, over the course of the past nine quarters. Conversely, net profit surged by an impressive 42%, marking its most substantial increase in six quarters thanks to the moderation of input costs.

In the aggregate, the combined net profit of the 2,937 companies featured in Business Standard’s sample achieved a historic milestone of Rs 3.36 trillion. This amount reflects a remarkable surge of 47.2% compared to the Rs 2.28 trillion from the previous year and Rs 3.27 trillion during the preceding January-March 2023 quarter.

Companies in the banking and finance sector within the sample showcased a robust year-on-year surge of 52.2% in aggregate net profit. When excluding banking and financial institutions, the growth in both revenue and net profit for the surveyed companies diminished to approximately 2% and 32%, respectively, during the June quarter in comparison to the previous year. However, This growth was facilitated by increased credit utilization, enhanced net interest margins, and reduced provisioning due to the ongoing enhancement of asset quality.

On the whole, the assessment offered by the report provides reassurance that the recent surge in stock market indices to unprecedented heights isn’t merely a manifestation of unfounded optimism, but rather possesses substantial grounding in fundamental realities. A more thorough analysis of the data yields insights into divergent patterns within the economy. For instance, as the pressures stemming from input costs begin to ease, there appears to be a waning momentum in aggregate demand, particularly on the consumption front.

Sectors catering to consumer services, including real estate and hospitality, appear to be experiencing a deceleration in growth. The prospect of a burgeoning rural recovery holds the potential to reverse these trends in select sectors, though the outcome remains uncertain.

In sharp contradistinction to consumer-oriented enterprises, industries categorized as industrials have effectively enhanced their sales momentum. Sectors such as infrastructure, cement, capital goods, and telecom equipment have all demonstrated successive upticks in revenue growth. This suggests that the investment facet of the economy, propelled by robust government capital expenditure, is presently outpacing the consumption facet.