When we observe the Q1 results of the companies included in CNX 500, we can see a lot of terrible facts.
40 percent of the CNX 500 companies report profit drop in the first Quarter of this fiscal (April-June 2011) from a year ago.
The important point which has to be noted is that in 2010-11, the percentage of companies who suffered profit decline was 30 percent. So a 10 percent increase in this quarter.
The detail diagram is shown below.
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| Based on 490 of CNX 500 companies which have announced results. |
Let us discuss the reasons for profit loss of some companies.
State Bank of India's (SBI) profits declined by 46 percent in this quarter and the main reasons for this dip was triggered by a spike in bad loan provisions and losses on it's investments.
India's leading construction company IVRCL's 85 percent profit plunge was attributable to higher project costs that were not covered by escalation clauses.
In traditional point of view, the sectors such as pharma and consumer durables were considered as Defensive sectors. But they produced some nasty surprises.
Blue star, whirlpool India, Crompton and Greaves - all reported a decline in their net profit. The main reasons for the decline was poor summer sales and rising cost of materials.
The main reasons for the profit dip of pharma companies was the soaring raw material costs. Companies told that the raw material costs expand at twice the rate as their sales.
The final villain was the rising interest rates. Overall interest costs for the CNX 500 companies shot up by 42 percent year-on-year. But the sales growth was just 29 percent.
Telecom companies such as Bharti Airtel also faced profit declines. The main reasons for that was due to rising interest costs after borrowing to fund 3G roll-outs.
So the major question that everyone asked is "whether India Inc. can still manage to deliver the 12-13 percent growth in the year as expected....??? " At the same time the PM said that the target of 12 percent growth is a tough job.
Lets wait and see.
Regards Hari " लोका समस्ता सुखिनो भवन्तु "
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