Rate hike hurting margins and consumer demand, says India Inc

The Reserve Bank raised interest rates on Tuesday for the 13th time since early 2010 but said it was likely to hold off on further increases as it expects high inflation to ease beginning in December.

Following are views of industry officials to the review:

HM Bharuka, Managing Director, Kansai Nerolac

“We are confident that no further rate hikes will take place but worries about growth remain. The industry has been expecting a slowdown in the economy but RBI was not acknowledging it. Finally they have acknowledged there is a slowdown by revising down the growth forecast.

For the paints industry, the constant rate increases have severely affected demand as they have impacted the auto and housing industry. So we are hoping, if the rate rise cycle comes to an end with this, then demand can show signs of revival in a minimum of 6-10 months.”

Anil Gupta, Chairman & Managing Director, KEI Industries

“It’s a difficult scenario, our margins are getting hurt because of higher interest costs. On the other hand, our consumers like real estate firms are in a tight spot too. This is hurting demand for our products. Also, containing inflation by raising interest rates seems to be having no impact as the inflation is largely because of supply side issues.”

Venu Srinivasan, Chairman, TVS Motors

“The positive side is the language used by the RBI, indicating they will look at moderating. I think the government and the Reserve Bank are getting concerned that we can get into a period of high inflation and low growth. Still, at this point in time they could have put off the increase in my view, because the economy is likely to grow just above 7 percent.

The two wheeler industry has grown by 19 percent in the first six months and will probably grow 12-14 percent in the next six months. We are likely to end up with a 15 percent growth this year.”

N Shridhar, Group Director, DB Realty

“The corporate margins would be under pressure given the increase in interest rates leading to a compression on spends in capex. For home buyers, this would result in an increase in outflow of EMI, which will lead to a compression in demand in new home purchases.”

Sunil Sikka, President, Havells India

“So far, they have not been able to check inflation that remains unabated. They must look at some other means instead of just keep raising the repo rate. We all know it’s a demand dampener. I hope it is the last one.”

Paban K Kataky, Director, Exide Industries

“The industry is already reeling under high interest rates. Things will get even worse after this. Funding costs will rise as interest rates will have a spiralling effect on everything. In such a situation, the demand becomes lower, so your production goes down and costs go up. There will be pressure on profitability. Things are very difficult for the industry. The government seems to be thinking that only by increasing the rates they can bring down the inflation.”

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Reuters