Corporate Results: Feeble Signs of
Corporate results for Third
Quarter of the financial year 98-99 are now coming in, and even though there was only a
small increase in overall sales growth, along with a decline in net profit growth, other
figures perhaps indicate the prospect of industrial revival in the later part of this
year. It is significant that, for the first time in two years, major public sector units
and large companies are reporting lower labour costs and "other income" as a
percentage of sales. This indicates that past efforts at trimming and rationalization are
beginning to take effect. Also of significance is the fact that the capital goods
sector, a primary indicator of industrial activity in the pipeline, grew by 10 percent in
the first nine months of this FY. Overall, we expect industrial growth to pick up
over the next few months, and this will be reflected in a bounceback in GDP growth in FY
99-2000 which will most likely be in the band of 5.3 to 5.5 percent.
1) The thrust of the budget will be to contain the growing fiscal deficit, currently
estimated to be more than 6 percent. But there is limited scope of controlling major
government expenditure, thus putting pressure to raise revenue. The budget will likely
promote greater disinvestment in public sector units.
2) There will be no major
changes in direct taxes. Import duty on selected items, such as textiles, consumer
electronics, white goods, chemicals and plastics will be increased, and excise duties on
many engineering and high-value goods will be rationalized. The list of items on zero
import duty will be narrowed. The budget will be largely tax-neutral for most companies.
3) Infrastructure, housing,
construction and food processing activities will get significant tax incentives.
4) Stock indices are
unlikely to rally after the budget. Capital and stock markets will significantly improve
only by Q3 99, and that too if there is no immediate prospect of new elections.