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Indian corporate earnings signal sustained growth

Solid fourth quarter corporate earnings point to a sustained economic recovery in India despite the wild gyrations of the stock market, analysts said Tuesday.

The aggregate net profit of India's top 125 companies between January and March this year shot up 80 per cent compared to the same period in the previous year to Rs 11.44 billion ($ 263 million).

Combined sales also soared more than 38 per cent to Rs 104 billion. While the 125 top companies are only a fraction of the 6,000 firms listed on India's stock exchanges, they do account for 20 per cent of the share market capitalisation.

"The scenario is reflective that the economy is in fine shape, that companies are performing solidly and all this is great news," said S Sharma, an economist with domestic brokerage, Prime Broking.

The benchmark company has been textiles and petrochemicals firm Reliance Industries, which alone accounts for more than 60 per cent of aggregate turnover and 75 per cent of aggregate net profits of the top 125 companies.

"Reliance has shown how to be tough and also make money. It has been a role model company," said Sharma.

The other driving force has been the performance of information technology firms.

Earnings of the top 30 infotech firms soared 131 per cent to nearly Rs 5 billion.

"Technology is undoubtedly the future, globally. And with India leading the way in software supply and skilled manpower, it will be the pace setter in this sector too," said Abhay Aima, chief investment officer with Bombay-based HDFC bank.

But despite the earnings performance, infotech stocks remain a risky gamble with Indian share prices following the roller coaster path set by the technology-heavy Nasdaq index in the United States.

"Investors need to be selective and invest in companies with sound business models," warned Nikhil Khatau, of foreign investment firm Sun F and C.

"If retail investors do not follow this, they might burn their fingers badly."