 "India Inc cheers early Diwali gift from Raghuram Rajan")
After a long time, corporate India has something to cheer. The Reserve Bank of India’s move to cut interest rates by 50 basis points will help corporates to reduce their finance costs at a time when many high leveraged companies were struggling to repay loans. But the rate cut by itself is not enough for them to start working on big ticket investments.
“I think it’s very positive for corporate sector. It would give relief to lots of companies which are facing headwinds. This should encourage Indian companies to start spending on capital expenditure,” said Prabal Banerjee, Head of International Finance, of Bajaj group. “But for big ticket investments, this 50 basis point cut is still not enough,” said Banerjee.
“Interest rate reduction will not lead to a boom in investment climate or investment process. Monetary policy plays a very marginal role in developing investment climate in any country. While such reduction in repo rate is very welcome step - I believe major step has to come from public sector undertakings investment in Infrastructure which will really turn the investment climate positively in our country,” said Banerjee.
“The reduction in interest rate will make marginal difference in surplus cash availability to any major company and will reduce the interest cost so less which will not make any major difference for investment making decision neither it will make any major change in profitability or viability of new projects. We possibly need to do much more investment from public sector to kick start the economy,” he added.
Ahead of the festival season, this rate cut is likely to boost consumer sales once the banks bring down the rates. "Its a a surprise move and this cut is showing the will and direction of RBI that if inflation is coming down we also can go the global way of lower interest rates. This will boost our Diwali and festive sales and give impetus to growth," said VN Dhoot, chairman of Videocon.
"It is a welcome move. May be little over due, but it is better late than never. Hopefully it will bring the cost of borrowing down for customers also, so more customers will buy. It will definitely give big fillip to investor confidence," said Venu Srinivasan, chairman and managing director, TVS Motor.
Ahead of the festival season, this rate cut is likely to boost consumer sales once the banks bring down the rates. "Its a a surprise move and this cut is showing the will and direction of RBI that if inflation is coming down we also can go the global way of lower interest rates. This will boost our Diwali and festive sales and give impetus to growth," said VN Dhoot, chairman of Videocon.
"It is a welcome move. May be little over due, but it is better late than never. Hopefully it will bring the cost of borrowing down for customers also, so more customers will buy. It will definitely give big fillip to investor confidence," said Venu Srinivasan, chairman and managing director, TVS Motor.
Bravo Raghu! The right medicine just in time.A 50 basis points cut is the right signal to markets & consumers and should boost consumption
— anand mahindra (@anandmahindra) September 29, 2015
"But banks need to lower their cost of deposits and standing in the the way are rates on public small savings schemes. Tricky issue for the government," he added.
The pressure to cut rates had been growing due to easing of retail inflation in August, and the governor has responded to this need, said Harsh Mariwala, chairman of FMCG major Marico.
"While this will help spur growth, it is one part of the exercise to get the economy on track, the reforms process will have to move in tandem," he said, adding that the central and state governments need to come on one page on the GST bill to implement it by the proposed deadline of April 1, 2016.
"Such measures will stimulate long-term growth," Mariwala said.
High finance costs coupled with a slowdown in the economy had led to many top corporates –especially in the infrastructure and commodities – making huge losses. Many big companies including Hindalco, Adani power companies, Reliance Gas had to resort to the RBI’s 5/25 scheme to restructure their loans and delay repayments.
A CEO of a manufacturing company said the 50 basis point cut will help them to reduce their finance costs but this is still not enough for them to press on the pedal for fresh investments. “We will be only spending on maintenance capex as the capacity utilization levels are still low,” said he.
In spite of a rate cut, the diversified manufacturing sector, where the capacity utilisation has fallen by 20 per cent from its peak, may not see meaningful capex spending in the next 24 months, say analysts.
In spite of a rate cut, the diversified manufacturing sector, where the capacity utilisation has fallen by 20 per cent from its peak, may not see meaningful capex spending in the next 24 months, say analysts.
The top 80 capex spenders are typically responsible for three-fourths of the capex spending of the top 500 corporates, as per a recent report by rating firm, Ind Ra. But a lot of the residual 420 corporates are struggling high leverage, low cash generation ability and challenges to access capital. Some of these corporates may face difficulties in undertaking even maintenance capital expenditure. These corporates will be a drag on the overall capex spending growth over the next two to three years, it said.
"This will however certainly help improve the sentiments in favour of consumer products companies as consumers will be encouraged to buy products," the CEO said.
