Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
Popular Search: cpt :: list of goods taxed at 4% :: TAX RATES - GOODS TAXABLE @ 4% :: ACCOUNTING STANDARDS :: form 3cd :: VAT Audit :: empanelment :: articles on VAT and GST in India :: Central Excise rule to resale the machines to a new company :: ACCOUNTING STANDARD :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: VAT RATES :: ARTICLES ON INPUT TAX CREDIT IN VAT :: TDS :: due date for vat payment
General »
 Simplified one page Income Tax Return Form: Changes to keep in mind before filing tax return for AY2017-18
  No proposal to replace Income Tax with Banking Cash Transaction Tax
 GST coming July 1 despite calls for delay: Revenue Secretary Hasmukh Adhia
 Centre introduces provision of taxation on NPS in Income Tax Act
 Income Tax Department Clarifies On Cash Withdrawal From Banks, Post Offices
 The Goods And Services Tax (Compensation To States) Bill, 2017
  Goods and Service Tax (GST) and Real Estate Sector
 New Income Tax Rules On Home Loan Come Into Effect
 Here's how late filers can save on stress and taxes
 Clarifications on the Taxation and Investment Regime for Pradhan Mantri Garib ?Kalyan Yojana, 2016
 Companies should invest in upgradation of tax technology

RBI rate hike to hit corporate margins
July, 27th 2011

The Reserve Bank of India's move to hikepolicy rates by 50basis points (100 basis points = 1%), compared to the 25-basis point that mosteconomists and analysts were expecting, is sure to hurt corporate profitability as banks pass on the higher costs of funds to their borrowers.

The central bank also said that banks have agreed to pass on the rate hike toborrowers quickly so that the transmission mechanism is much faster this time. For example, within hours of RBI's decision on rates,Yes Bank raised its lending rates by an equal amount and said this would help it absorb the impact of increased rates. It may be noted that after the 25-basis point hike in rates in June, some banks had absorbed the impact and did not hike their lending rates.

Going forward, market players said companies in the interest rate sensitive sectors like real estate, automobiles, capital goods are expected to be affected more than the other sectors. And as banks begin passing on the impact of RBI's decision, corporate revenues and profitability for the quarters ended September and December would be under stress, they said. "It gives a clear indication to fiscal managers to take appropriate action in terms of shifting and correcting the fiscal spend towards capacity building and not just consumption and subsidies .

The unfortunate implication is a potential ratcheting down of economic growth as investment spending becomes a tougher call for the private enterprise.

Certain sectors are bound to see a tapering off in consumption driven demand although the long term opportunities are intact in nearly every sector as Indian demographics are still very compelling," said Sanjay Nayar, CEO KKR India.Economists and analysts agree that with each rate hike, it is becoming increasingly more difficult for the central bank to further increase its policy rates. They also agree that the rate hike decisions by banks post the central bank move have also not been secular.

A recent report by Sidhhartha Sanyal, India chief economist, Barclays Capital, pointed out that between November 2010 and July 25, while the RBI had raised rates by 125 basis points, banks on an average have hiked their base lending rates by about 165 basis points. For RBI, this was the 11th hike in rates since March 2010, and this continuous spate of increasing rates, mainly to contain the rate of inflation that is much above the central bank's comfort level, corporate earnings have been under pressure over the last three quarters.

"The consensus earnings estimate was already downgraded by about 7-8 % in the last three quarters," said Sampath Reddy, CIO-Equities , Bajaj Allianz Life Insurance. There are indications that the earnings growth for large corporates is largely back-ended with the expectation of a rebound in growth in the second half of the current fiscal.

"With policy action not being conducive to high growth and interest rates remaining elevated for the remainder of the year, the earnings growth estimate could witness further downward revision," Reddy added.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
SEO Company Search Engine Optimization Company US SEO Local SEO Company Website SEO Company Alabama SEO Company Alaska SEO Company Arizona SEO Company Arkansas SEO Company California SEO Company Colorado SEO Company Connecticut SEO Company Delawa

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions