Mumbai: The impact of demonetisation on the topline of Indian corporates is expected to continue well into the fourth quarter according to Crisil. The ratings agency said that for the third quarter (Q3) ended December 31, 2016, corporate topline growth is seen declining to 4% on-year because of demonetisation.
Another ratings agency Fitch has said that benefits of demonetisation are highly uncertain. "The impact on the economy will increase the longer the disruption continues, but Fitch has already revised down its GDP growth forecast for FY17 to 6.9% from 7.4%," said Dan Martin, senior analyst, Fitch Wire. Describing demonetisation as a 'one-off' event, the agency said, "People that operate in the informal sector will still be able to use the new high-denomination bills and other options (like gold) to store their wealth. There are no new incentives for people to avoid cash transactions. The informal sector could soon go back to business as usual."
Corporate India was earlier showing signs of good recovery. In the three quarters preceding demonetisation, revenue growth had ticked up to an average 6.3% from around 1.7% seen in the four quarters prior to that. According to Crisil the pace of growth in Q4 will still recover to 5-7%.
Crisil's forecast is based on an analysis of 390 companies — excluding banking, financial services and insurance (BFSI) and oil companies — which account two-thirds of market capitalisation of the NSE listed companies.
"Despite a favourable monsoon and lower borrowing costs, we expect key consumption-driven sectors such as automobiles, telecom services and FMCG to record the slowest growth in two years," said Prasad Koparkar, senior director, Crisil Research. However, steel product companies are expected to report a robust 25% growth, primarily led by 18% higher realisations helped by government support and robust export growth. The aggregate revenue of large formulation firms is also expected to surge 11%, given new product launches in the US, with a few products enjoying market exclusivity.
"For the third quarter, power, steel products and pharmaceuticals are expected to record better operating margin compared with last year. For large formulation players, operating margin is estimated to expand 140-170 bps, thanks to product launches," said Binaifer Jehani, director, Crisil research. FMCG companies, though, are likely to witness a margin decline of 250-300 bps on account of rise in the cost of raw material and heavy investments in advertising and brand-building.
Among other industries sales of cars and utility vehicles, as well as two-wheelers have declined. Gross revenue of the telecom services industry is expected to fall 11% on-year, given a double whammy of Reliance Jio's entry and demonetisation.