Impact of meltdown on Indian labour & consumer markets

This must come as a relief to many, especially B School students right in the middle of placement season. ET reports that even as economists and government officials are busy revising India’s GDP growth estimates downwards, demand slowdown, it appears, is yet to hit India Inc.

An ET study of early birds — companies who have announced their financial results for the quarter ended September 30, 2008 — shows that aggregate net sales for 175 firms have grown by a healthy 32%, which is marginally more than the 31% topline growth in Q2 FY08. Sales growth in the past five quarters is in the 27-34% range. Rising interest costs and high fuel and power expenses have resulted in the quarterly net profit growth shrinking to a modest 12% for the companies in the study during Q2 FY09 as against 32% growth during Q2 FY08 and a sizzling 48% growth during Q3 FY08. However, the good news is the aggregate profit growth shows a rebound in the quarter under review. Net profit growth of these firms had slumped to just 2% during Q1 FY09 and stood at 10% in Q4 FY08. The performance of the companies which are part of the Sensex, the benchmark stock market index, has been even better.

In the midst of a possible recession, firms will tighten on spending and try and turn as lean as possible. In spite of a possible cutback on hiring, its fallout may not affect the labour markets to the extent that there would be a complete freeze on hiring. Instead firms will focus on internal operations to see how they can get leaner, more efficient.

Its to be noted that consumers too may cut back on their discretionary income spending, but again not the extent that they would put a complete freeze on it. A few days ago I was at Coimbatore in one of the leading apparel stores there. All around I could see Diwali purchases being made at a frenetic pace. In fact we had to wait a good ten minutes at the delivery counter to get our packed purchases. I know this experience is not enough for me to draw inferences, but its good enough for me to know that consumers are still willing to spend, should the price-value equation seem fine to them.