After facing headwinds for two consecutive years, the economy is set to grow at 6.8 pc next fiscal on reversal in deterring factors, says the economic think tank CMIE.

“The economy is set to grow at 6.8 per cent in 2013-14, after showing a sharp deceleration in the preceding two years,” the Centre for Monitoring Indian Economy (CMIE) said in its February review of the economy.

It said the slowdown is due to supply constraints emanating from mining and agricultural sectors, slow implementation of projects and a slowdown in discretionary spends.

In FY14, “growth will be aided by easing supply constraints, lower inflation, softening of interest rates and fast-tracking of investment projects,” it said.

However, it is not very soft on headline inflation numbers which it sees settling at 6.8 percent in FY14. As percent the advance CSO estimate, the GDP may grow a decadal low of 5 percent.

An upbeat CMIE expects it to touch 5.7 percent this fiscal, 2 bps above even the Finance Ministry’s projection.

In an announcement which spooked a lot of stakeholders, the Central Statistical Organisation last week announced that the economy will grow at 5 percent this fiscal, a decadal low after the 4.7 percent growth in FY02.

This would be much lower than the 6.2 percent clocked in FY11 and the 6.7 percent achieved in FY10, in the immediate aftermath of the post-Lehman financial crisis.

Corporates to see 25 % acceleration in profit growth in FY14: CMIE

Corporate India is poised to see acceleration in profit growth to 25 percent in 2013-14 from an expected 14.5 percent in 2012-13, an economic think-tank said.

“Corporate India is expected to accelerate profit growth to 25 per cent in 2013-14 from an expected 14.5 per cent in 2012-13. Softening input prices, appreciation of rupee and consequent absence of forex losses are expected to boost profitability,” Center for Monitoring Indian Economy (CMIE) said in its monthly review.

Corporate India’s net profit margin is also expected to expand to 7.8 percent in 2013-14 from an expected 6.8 percent in 2012-13, it said.

International prices of crude oil are expected to fall by 2.9 percent in 2013-14. This coupled with a 4.1 percent appreciation in the Indian rupee is expected to bring down the cost of crude oil imports substantially, the report said.

The petroleum products sector is expected to be the major beneficiary of this. High landed cost of crude oil imports has led to its raw material expenses as a proportion of sales shot up to 91.7 percent in 2012-13, which are expected to come down to 88.4 percent in 2013-14, CMIE said.

CMIE further said that the government has not been regular in announcement and disbursal of oil subsidies.

This has pushed the petroleum products industry into losses in many a quarters and has also led to a sharp increase in its interest burden.

The partial deregulation of diesel prices announced earlier this month is expected to reduce the reliance of the petroleum products industry on subsidies and aid its bottomline, it added.

The net profit of the petroleum products industry are expected to climb up to 4.4 percent of income in 2013-14 from an expected 2.2 percent in 2012-13.

The petroleum products industry accounts for 10-15 percent of total corporate profits and hence its profit growth has a strong bearing on the overall profit performance of corporate India.

Industries engaged in manufacture of other crude oil derivatives such as chemicals, polymers, plastics and paints are also expected to reap the benefits of around seven percent fall in landed cost of crude oil imports in 2013-14, CMIE said.

Other industries that depend on imports of meeting their raw material requirement like edible oils, fertilisers, steel and tyres will also benefit from the weakness in the international commodity prices and strengthening of rupee.

CMIE said it expects prices of metals like steel and copper to rise by only 2-3 percent in 2013-14, after rising by 7-8 percent in 2012-13.

This is expected to ease pressure on profit margins of major metal consuming industries, such as machinery, electronics, automobiles and construction.

A slower four percent rise in cement prices compared to the seven percent rise in 2012-13 will also help the construction industry increase its profits, it said.

The rupee is expected to appreciate in 2013-14, after suffering a sharp depreciation in 2012-13. We expect the appreciation to be gradual unlike the volatile movement witnessed by the currency in 2012-13.

The rupee had depreciated sharply by 9.1 percent in June 2012 quarter and by 3.8 percent in December 2012 quarter. This bought huge forex losses to the companies having short-term forex liabilities.

Such losses are not expected in 2013-14, CMIE said. Hence, other expenses of corporate India under which the forex losses are accounted for, are expected to rise at a slower pace of eight per cent than the 11 percent rise expected in 2012-13.

Besides, some forex gains will be made due to appreciation of rupee which will directly add to the net profits, it added.