As I was reading today in one of the leading financial dailies, the September 2011 quarter has turned out to be the worst period for India Inc in three years with a sharp fall in net profit and shrunk margins.
Sep’11 quarter has been marked by a moderate growth in top line and a fall in profit. Firm raw material prices, buoyant staff costs and a spike in fuel prices have hit the operating profit margins of most of the companies. Moreover, incessant rise in interest rates has further hit the net profit margins of the companies.
It was an important day since many of our Alpha Recommendations were to announce their Second quarter results. There were a few bad results, while most of the companies recorded very good results and the same is all the more important considering the overall slowdown.
High interest rate coupled with overall inflationary environment has impacted the margins of rate sensitives and cyclical stocks (Read: Sumedha Fiscal and Piccadily Agro), while other companies have done extremely well (Read: ABM Knowledgeware, Cravatex, etc). The important point worth noticing is that almost all the companies recorded a good hike in revenue, with no great signs of slowdown in demand.
So, once the inflation comes under control and interest rates start softening we could again see restoration of margins and thus the profits.