Cos likely to see policy calls less rattling
Chief financial officers of corporate India will not lose sleep over a small hike in short-term interest rates. More so, because it was expected, and most companies have taken higher interest rates as a given.
Chief financial officers of corporate India will not lose sleep over a small hike in short-term interest rates. More so, because it was expected, and most companies have taken higher interest rates as a given.
A near-term impact will be a higher business cost, as working capital finance will become expensive. Companies have very lean working capital requirements after years of tweaking, and there is little headroom for further savings.
A rising interest rate scenario also affects those with projects in the pipeline. Companies, which already raised money when the going was good, can breathe easy as their immediate funding requirements are taken care of. Others may have to redo their project costing, factoring in higher interest costs. That may not affect the viability but lower the returns a tad.
Companies would be concerned about the cost of finance, but whether consumers slow down their spending would be a bigger concern. There is no sign of an across-the-board demand slowdown. Interest rates have not reached a stage where they are affecting the repayment capacity.
Rising income levels in the working population further raise the threshold. Only a sharp increase in rates from here on or a hike in prices of products/services could affect demand. The pressure to hike prices will mount - manpower, material and interest costs are all treading higher.
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The ability of companies to shield the consumer from price hikes will matter more to demand than rising financing costs. So far, price hikes have been few and measured. That is obviously putting pressure on margins, affecting the profit growth. The tempering of profit growth may not worry companies which have a long-term view, but stock markets may react differently.
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