Sunday December 21, 03:03 AM

Source: Indian Express Finance

Slowdown to hurt corporate profits in medium term: study

By Economy Bureau
The ongoing slowdown in the global economy will reduce the growth momentum in corporate profits in the medium term, even as the interest rates are headed down, says a study conducted by Motilal Oswal Securities Ltd. Corporate profit as percentage of gross domestic product is likely to revert to 4.5-5% over the next three years from 6.4% in 2007-08. The 13 Annual Wealth Creation study (2003-2008) said interest rates are clearly coming down in line with the global trend. India s 10-year G-sec yield is 6.6% while that of US is at all time low of 2.7%, it said. Lower yield indicates low interest rate scenario. Despite low interest rates, the Bombay Stock Exchange (^BSESN : 16632.01 -222.92) Sensex is currently trading at a trailing 12-month price earning ratio of 11x, close to its historic lows of March 2003 (the beginning of a five year rally). Low market P/E clearly suggests that the market currently anticipates a sharp fall in corporate profits across the board, the study said.It said that markets have bottomed at Sensex level of 7,700 points and are now set for a sharp 30-40% recovery, provided companies earn stable profits. The study found that Mukesh Ambani-led Reliance Industries (RELIANCE.NS : 1045.95 +-17.8) made the maximum wealth during 2003-2008 due to the strong bull run in the stock market till early this year. Realty major Unitech has emerged as the fastest wealth creator, while Infosys (INFOSYS.BO : 2328.3 +-58.55) topped the list of the most consistent wealth creators. Reliance Industries has amassed a wealth of Rs 3,07,700 crore in the 2003-08 period, and is followed by state-run ONGC (ONGC.NS : 1165.15 +-9) (Rs 1,59,300 crore), Bharti Airtel (BHARTIARTL.BO : 283.65 +2.65) (Rs 1,50,500 crore), NMDC (Rs 1,35,600 crore) and MMTC (Rs 1,08,400 crore). In 2003-08, top 10 wealth creating companies accounted for 49% of wealth created compared to 76% during 1998-2003. Commodities led by oil and gas were the front runners in 2003-08, even as change of leadership is almost certain going forward. During the period under review, two dominant themes have emerged which involve real estate and commodities. Interestingly, Unitech has been ranked as the fastest Wealth Creator during 2003-08, with a five-year stock price Compounded Annual Growth Rate (CAGR) of a whopping 284%, the highest ever in the past wealth creation studies. The fastest wealth creator list also includes, Jai Corp, state-run MMTC, Financial Technologies, BF Utilities and Aban Offshore.Infosys, which has been named as the most consistent wealth creator, is followed by Hero Honda and Ranbaxy.