A compilation of results of 696 large and mid-caps reveals a rather tepid one percent year-on-year aggregate growth in operating incomes. That’s not very inspiring. But look at the numbers on a quarterly basis and they show a near 5 percent pick-up. Similar is the case with profitability after adjusting for operating and interest costs (Profit before Depreciation and Tax), which grew less than 15 percent on a year-on-year basis, but a heady 55 percent on a quarter-on-quarter basis. And so as to avoid any lower tax rate distortions, if you consider the profit before tax (PBT), a similar trend is borne out.

The question to ask, therefore, is have we troughed? The answer could have been in the affirmative, but the recent external shocker — the spread of Caronavirus — could skew the trend. Given that several Indian companies have China exposures — sales, sourcing or global price-linked commodity businesses — there could be a significant impact on their performance in the last quarter of the financial year.

But let’s take a look at what the numbers reveal. Other income has grown at a healthy pace in aggregate for the collection of companies aiding profits, but even shorn of this, the profitability of companies has improved. The PBDT margin to 7.25 percent from 4.91 percent in the preceding quarter reflects a mix of interest cost reduction, lower input costs and a tighter control on costs. If this can be sustained and improved, a pick-up in demand and consequentially revenues could deliver a higher-than-trend improvement in profits.

So, if you are betting on a revival in the economy, you may have placed your bets right; just that the Caronavirus can throw a spanner in the works, albeit for a quarter or two.

First Published:Feb 17, 2020 3:56 PM IST