Is the recovery in the Indian Economy real? Q4 corporate results so far support recovery theory

Even as the layman in India and small time businessmen keep wondering where is the growth and how is he or she getting benefited , plethora of research findings keep circulating in media on how "India is an Oasis in Global desert" and how "India has the fastest growing service sector in the world". 

Q4 FY 16 corporate results for 350 companies have been satisfactory so far. There is an up-tick in net sales, as reported by leading business daily , at 5.6 percent; and this growth in  net sales figures aggregated for the 350 companies reflects the fastest growth in previous six quarters as per the report.  The report also highlights increase in profitability for the companies who have declared results suggesting that the recovery is indeed in place. 

An investor may find it extremely difficult to connect the dots given; on one hand the macro economic data for Indian Economy is so strong , and when one looks at the corporate results, the growth has been abysmal  for last one year or 4 quarters of earnings as analyst's always report.  India's market capitalisation to GDP stands at 69 percent if we take the December 2015 data and we can safely say that the stock market prices do reflect the status of Indian economy very well and that there is positive correlation between both stock prices, as influenced by corporate earnings and GDP growth.  One wonders how is it that the GDP numbers have been good  and the corporate earnings growth and sales growth across the sectors has been slowing for such a lengthy period.

For Q4 FY 16 , good satisfactory earnings from power companies  and auto companies was the  highlight . Banking sector due to provisioning norms reflected a growth in operating income but struggled for net profit growth. Information technology did not perform up to expectations of investors. The latest GDP forecast suggests 7.5 percent GDP growth for coming 1 year. 

With the complex relation between Economy growth and EPS growth which looked not so complex for the period 2002 till 2008 when GDP was growing and Sensex EPS also grew handsomely , investors need to place their bets cautiously by not blindly following the GDP numbers and the bullishness it throws in the system.

According to the Regional Keqiang Index (RKI) developed by Ambit Capital which tracks the real economic indicators, the Indian economic growth has actually slowed down substantially , recently.