A cutback in hiring and compensation growth by IT companies will have a significant impact on consumer demand, especially in the urban sector of the economy.
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Metal and mining companies, such as Tata Steel, JSW Steel, Hindalco, and Coal India, have been among the top-performing sectors on the bourses in recent months.
The S&P BSE Metal Index is up 13 per cent in the past three months, rallying 29 per cent in the past year, outperforming the broader market.
For comparison, the benchmark S&P BSE Sensex has only seen a 1.7 per cent increase in the past three months, with a 15 per cent gain since the end of September last year.
The recent surge in crude oil prices could shave off the gains made by India Inc in profit margins in the past few quarters.
Worse, it comes at a time when consumer demand in the country is slipping and major global economies are witnessing a slowdown.
A back-of-the-envelope calculation suggests that the margin expansion accounted for three-fourths of the rise in the listed firms operating profit between the April-June quarter (Q1) of FY23 and Q1FY24, and only a quarter of profits gains came from revenue growth.
The strength of wage growth, asset price inflation, and the lingering impact of the post-Covid dole-outs have kept household demand above potential, thereby sustaining the high inflation. Additionally, the federal government fiscal expansion, rising 61% YoY to $1.52 trillion (Oct22-Aug23, projected at $1.9 trillion in FY24), is creating another round of demand impulses.