WASHINGTON – Following a US State Department report which said India has failed to introduce economic reforms as claimed by Prime Minister Narendra Modi, the Wall Street Journal on Wednesday said that profits of the companies working in India have contracted during the last quarter which ended on June 30.
According to the paper’s economic analysts, although India was given the status of world’s fastest-growing large economy and Narendra Modi’s was thought to be a business-friendly leader, the companies working in the country are shedding their profits at a great speed.
“The earnings growth of the 30 companies on India’s benchmark Sensex index likely fell 2% in the three months to June 30, according to estimates from Kotak Securities Ltd,” the report said.
It went on to say that hopes of the investors who were buying shares in the companies expecting reasonable earnings could be doomed now, as the banks and oil and gas companies are on the top of the list in declining their profits.
The newspaper also quoted JM Financial Institutional Securities Limited as saying: “State-run banks are likely to report close to a 16% decline in profits, while private-sector banks’ profit will rise about 6%. The oil and gas sector will post a 26% decline in profit during the period due to weak refining margins.”
Meanwhile, some sectors such as cement, consumer goods, capital goods, building materials and utilities are expected to buck this weak trend and register healthy earnings growth around 10%.
Earlier last week, a US State Department report, which aimed to guide US investors interested in India, noted that the Modi administration had failed to improve the land-acquisition laws or push legislation in Parliament to simplify the taxation system.
“This has resulted in many investors retreating slightly from their once forward-leaning support,” it said while adding, “India is one of the fastest growing countries in the world, but this depressed investor sentiment suggests the approximately 7.5% growth rate may be overstated.”
The report, however, appreciated Prime Minister Narendra Modi for taking several steps which have reshaped the Indian economy as “generally friendly” towards foreign direct investment in fields such as civil aviation, defence, e-commerce and pharmaceuticals.
But still, it said, “many sectors of the economy retain equity limits for foreign capital, which has proven to be a deterrent to investment.”
The State Department report went on to say that India’s economic significance cannot be ignored as the construction of new infrastructure worth $1.5 trillion to $2 trillion is being planned in the country over the next 5-7 years.
“Despite the challenges, the opportunities are immense for foreign companies operating in India, although many highlight that success requires a long-term planning horizon and a state-by-state strategy to adapt to the complexity and diversity of India’s markets,” the report said.
