India Inc to clock robust growth in third quarter

India Inc may well post robust growth in revenues and profits in the third quarter of the current fiscal but profitability would remain under pressure due to rising input and borrowing costs.

While the net profit of nifty companies (excluding oil and gas) would increase 14.2% year-on-year (y-o-y ) in the quarter, sensex firms would grow at 23%, according to estimates by leading brokerages. The net profit of sensex companies would grow 23% y-o-y to around Rs 39,900 crore in the third quarter, according to an analysis by Motilal Oswal Securities. Net sales would increase 16.6% y-o-y to about Rs 3.02 lakh crore.

“Higher (input) prices would dent profitability. But the impact of higher prices would be felt in the last quarter (of fiscal 2011),” said Gopal Agrawal, head, equities, Mirae Asset Global Investments. The persistence of the current uptrend in commodity prices, driven by rising global liquidity and domestic growth headwinds such as rampant inflation, tightening liquidity and resource crunch, pose significant risks to growth , market observers said.

“Margins would start coming under pressure but volume growth would sustain ,” said Kishor P Ostwal, managing director of CNI Research , an equities research provider. PAT (profit after tax) is also expected to be depressed due to higher interest costs, analysts at Prabhudas Lilladher said.

While stressed liquidity is pushing up interest rates, rising input costs and interest rates would impact discretionary consumption spending , observers said. “Sustained liquidity shortage may hamper industrial growth. , analysts said.