Another earnings season has begun, at a time when the economy is slowing and inflation is biting.
Investors will naturally be keeping close tabs on the numbers that Indian companies announce in the coming weeks. But the Reserve Bank of India should also be paying attention to the trend in sales and profit margins, because the quarterly results will give clues about the loss of pricing power and, hence, the ability of companies to fan inflation.
Growth in sales, operating profits and net profits will likely resemble an inverted pyramid, with growth slowing at every successive level of the earnings statements. If that indeed happens, then it could be an indication that firms have been unable to pass higher input and wage costs to consumers. That could be a sign for the central bank that demand growth is hitting a wall and companies cannot add to price pressures.