The Question Of Profits

This may turn out to be only a short-lived interruption to the corporate profit cycle that began in 2020, but could as easily be the start of a longer down cycle

- Udayan Mukherjee

THE ONE THING every CEO, indeed any person employed in the business world, dreams of is a profit up-cycle. This is the corporate equivalent of the proverbial God's in his heaven/ All's well with the world. Profits go up, companies feel bolder, invest in new projects, employ more people, hand out bigger increments and, yes, stock prices go higher. What's not to like? Some excesses happen, but that is inevitable. No better example of such a phase than the 20032008 boom, probably the biggest up-cycle we will see in this era. It may have ended badly, but the memories are still sweet.

The decade that followed, with minor rebounds in between, was India's 'lost decade' from a perspective of corporate profits. The particularly pronounced phase of this downturn was between 2013 and 2020 when earnings of Nifty companies grew in single digits annually, which for a high-growth economy like India ends up feeling like an earnings recession. Yet, such was the anchoring to the boom of 2003-2008 that brokers and analysts kept expecting profits to rebound every year, leading to the dispiriting phenomenon of earnings downgrades every quarter for nearly eight long years. The market is proposed, only for companies to dispose. Year after year.