The double-digit surge in India Inc's profits in the September quarter (ex-telecom) should be taken with a pinch of salt. Thanks to one-time gains in profit - on the back of corporate tax cuts that resulted in a reversal of a part of the tax paid at the higher rate in Q1 FY20 - 484 companies on the BSE-500 (ex-telecom) reported a 16 per cent jump in net profit.
Sales growth at 1.1 per cent, however, remained weak despite it being a festive quarter. Excluding the tax element, profit before tax rose just 1 per cent for the 484 firms, which account for about 95 per cent of the BSE market value. Brokerages do not rule out de-rating, as management commentaries have not been rosy amid bleak demand outlook. Kotak Institutional Equities expects net profit of the Nifty50 firms to grow 11 per cent in FY20, while Motilal Oswal sees Nifty EPS grow 12 per cent. A bulk of upswing in profit is expected to come from banks that could benefit from National Company Law Tribunal resolutions, credit growth and tax cuts.