The stockmarkets are listless, consumer confidence is tepid, and the disinvestment soap opera continues to drag, but India Inc's report card for 2003 mercifully doesn't reflect all those woes that dog the Indian economy. Rather, corporate India's performance so far is good enough to have even chronic cynics acknowledging that there are some sectors out there that are getting it right.

If technology slipped a few notches, banks filled the breach by posting an impressive showing. Similarly, if the auto sector flattered to deceive, auto components more than made up. "There is an overall improvement in efficiency, both at the operational and financial levels. And this improvement will continue in the coming year as well," points out Dileep Madgavkar, Chief Investment Officer, Prudential ICICI Mutual Fund. "The Indian manufacturing sector has started exploiting overseas markets. ''The spurt in outsourcing from Indian auto ancillary companies is one example of this trend, and I am sure many more sectors will do the same in future," adds Paras Adenwala, Head of Equity, Birla Sunlife Mutual Fund.

Here's the proof of the pudding: Aggregate sales of 1070 companies analysed by Business Today (See Methodology) climbed 13 per cent in 2002-03 over the previous year. Operating and net profits were up 17 and 36 per cent respectively. The overall growth last year was pretty much sustained in the fourth quarter (ended March 2003), with sales moving up 12 per cent over the December quarter, operating profits, 10 per cent and net profits, 18 per cent.

The financial year 2002-03 has of course been consigned to the history books, but buried somewhere in that blast from the recent past are the trends that will play themselves out in the current year. Here are some of the more significant ones:

The Second Rung Strikes

1 If you've assumed that it was the large corporations that contributed to the double-digit growth clocked last year, well, that's not exactly how it happened. To be sure, it's second-rung companies that have outshone their higher-profile counterparts. This explains why the solid corporate performance isn't reflected in the stockmarket's benchmark indices, which are still floundering. "The performance of the big companies was not as good as the second line companies and both the Nifty and Sensex have been pulled down by the lacklustre performance of these large-cap companies," explains Chetan Sehgal, Fund Manager, Templeton Mutual Fund. On the other hand, the Nifty Junior has shot up by 150 points (11 per cent) in the past three months, even as the Sensex slipped by 229 points (7 per cent). If you think you've missed the mid-cap bus, the good news is that it's not over yet. "There is further scope for growth among mid-cap stocks," asserts Sehgal.

2 "There is a significant reduction of interest cost as a percentage of sales," points out Rajat Jain, CIO, IDBI Principal Mutual Fund. Most of this was courtesy the fall in interest rates. Concerted efforts by companies to replace high-cost debt with low-cost loans also yielded results. Analysts expect this trend to continue for at least the next couple of quarters. Reason: the banks' prime lending rates are still high compared to their deposit rates and there is scope for further reduction. The Reserve Bank reduced the bank rate by 25 basis points during the last monetary policy, signalling a trend of further softening interest rates.

3 The it services sector's heady growth might have been rudely interrupted, but keep an eye on the training segment, which is slowly but surely showing signs of revival. NIIT for instance is one of the few it companies to have posted decent growth (50 per cent of NIIT's revenues come from training). it analysts expect the training sector to be the next growth driver. This is due to the rapid changes that are taking place on the IT front. For example, the margin squeeze on Indian it majors is mainly because foreign it majors are setting up their own facilities in India. "Whether it is Infosys or IBM, the demand for qualified it professionals will only increase," points out an IT analyst with a foreign mutual fund.

4 Indian pharmaceutical companies have shown better top line growth than their foreign counterparts. For example, compared to the overall industry sales growth of 19 per cent, Indian companies have grown at 24 per cent. However, the bottom line hasn't quite kept pace, as the homegrown firms weren't able to control their costs. Their net profits grew just 24 per cent as against the industry average of 58 per cent. That's why analysts expect the MNC pharma bandwagon to continue with its good profitability record in the current year as well.

5 Capital goods has done exceedingly well and is expected to continue with the good showing in the near future. "Most of these companies have restructured their operations during the last three to four years and now the cost structure is in their favour. So during the coming years, their bottomline growth will be much more than their top line," explains Srinivas Rao, analyst at Edelweiss. "And with more money coming to the power generation and distribution sector, the performance of companies like ABB and Siemens should only improve," he adds.

6 After it and biotech, the outsourcing bug has moved on to auto components and this explains why these companies have done exceedingly well. "Almost every global auto major is trying to protect its margins; so they are coming to India. Here again, the main driver is the cost advantage and this cost advantage should be sustainable for several years," explains Templeton's Sehgal.

7 Banks are minting money out of the interest rate fall and during the last year their aggregate net profits have increased a whopping 91 per cent. This trend is expected to last at least for the next few quarters. Most of this came from treasury income. With the gilt yield coming down from 6.13 per cent as on March 31 to around 5.85 per cent now, hopes have been raised of another extraordinary quarter. As the entire gilt portfolio is not marked to the market, most public sector banks have huge unrealised appreciation. For example, Bank of India has an unrealised appreciation of Rs 1.182 crore as on March 31. "In addition to that, we have also created an Investment Fluctuation Reserve (Rs 342 crore as on March 31) to withstand future interest rate shocks," says K.V. Krishnamurthy, Chairman & Managing Director, Bank of India.

What's more, the banks' spreads are increasing as well. This is because the deposit rates have fallen faster compared to the loan rates during the last one year. There are other long-term reasons why banks will do well. "Restructuring (like reducing the staff strength through voluntary retirement schemes, closing down of unviable branches) has started fetching results," says one banking analyst with a domestic mutual fund.

8 Aluminium is another industry that did well, and is expected to do well in the future. However, although aggregate sales have shot up 19 per cent, net profits were down, thanks primarily to Hindalco's bottomline, which was lower by 15 per cent. But that might have well been an aberration. "The power grid failure that put half of India to darkness let us down and the huge extraordinary loss during the last quarter is only because of that," explains A.K. Agarwala, Executive Director, Hindalco Industries. "With the domestic demand for aluminium picking up (due to the expected boom in auto components), the sector's prospects can only improve," he adds.

The Laggards

It isn't as if all of corporate India has performed. There are a few sectors that continue to languish (and also remember that the poorer results will begin trickling in towards the end of May). Here are two sectors that are in the dumps:

9 Once seen as a driver of the "new" economy because of its potential to provide "bandwidth to the nation," the optic fibre cables sector is in a miserable condition today.

Huge capacity created during the dotcom boom has resulted in a glut in prices world over. This explains why the aggregate sales crashed 48 per cent, operating profits plummeted 80 per cent, and a net profit of Rs 163 crore in 2001-02 turned into a loss of Rs 98 crore last year. With no big investment expected, the condition of these companies can only get worse.

10 Sugar is still amongst the few industries that are still under strict control. The government fixes the price for its raw material (sugar cane). It also fixes the quantity it can sell in the open market and the price of sugar to be sold to the government (levy quota).

As the sugarcane prices fixed by the government are well above international prices, the cost of production goes up, thereby making it unviable for exports as well. And all this explains why operating profit fell by 18 per cent during the last year. The aggregate net loss increased from Rs 24.71 crore to Rs 95.58 crore. With the government getting into election mode, this sector may have to wait a while for some succor.