India Inc optimistic as inflation pain begins to ease

Inflationary pressures are showing signs of plateauing, companies said, adding that they are preparing for a positive impact, but with a lag effect on margins and consumption over the next three to six months. Overall, the costs of some commodities have reversed to June 2021 levels, they said. While industrial growth has been upbeat due to government capital spending, businesses are closely monitoring trends in consumer demand, which has shown signs of improvement since earlier this month as the festive season starts early, they said.

Data compiled by the ETIG shows that major commodity prices have risen above their recent highs.

While cement prices fell 11% from their May high, steel prices fell 20% from their March highs.

International crude oil prices are down a quarter from their highs first reached in March. Refined palm oil prices are 22% below May highs, while ABS plastic prices are down a third from their November highs of last year. Natural gas prices fell 10% from highs in early June.

“The prices of basic raw materials such as aluminum, copper or steel have fallen and an 11-month reversal of rising commodity prices is quite good,” Anuj said.

executive Director, .

However, crude prices will make an exponential difference and it is important for the government to monitor this and use levers to help consumer demand, he added.

“I think capex investments will take time to show a recovery and a recovery in consumer confidence will help better because our economy is largely consumer driven,” Poddar said.

Despite inflationary pressures, growth, although slowing, has helped them stay the course, the companies said. The corporate sector grappled with headwinds from rising input and logistics costs, which impacted its earnings in the coming quarters. Geopolitical tensions are expected to impact energy prices and input pressures, however, they said.

Companies have therefore not changed their profitability forecasts for the coming months until the existing stock is carried over. Optimistic growth in one sector offsets the other, said Seshagiri Rao, co-chief executive,

, and Group Chief Financial Officer. For example, growth in the industrial sector, led by infrastructure and real estate, has been strong. Government investment programs (both at central and state level) are progressing well, and India’s service-oriented exports have also been upbeat. The appliance and packaging sectors are doing well, while the FMCG sector reported pressure on volumes. With a good monsoon, agricultural businesses will resume for the rural sector, he said.

“I think the RBI’s intervention to contain the money supply to stop further inflationary pressures will also ultimately contribute to consumption-led growth. The geopolitical effect on energy prices and the challenges of the supply chain will however persist since all global economies including India are interconnected and cannot be isolated beyond a point,” Rao added.

Consumer sentiment, according to the companies, has also improved since August. “I expect the third quarter to show improved trends and already August is showing improved growth as the festive season started early this year,” said Poddar of Bajaj Electricals. Senior executives said inventory and pre-signed contracts for production mean it will be another quarter before we see visible changes in retail prices.

Senior corporate insiders also detailed the drop in commodity prices on conference calls with analysts, but mentioned the impact of the lag that will benefit margins and demand.

“If a commodity like palm oil remains at the low end of the range as we have seen and if we see it for many other commodities, we expect that from the quarter of December, inflation may come down to a certain level. And that should help build sequential margin from the December quarter,” said Ritesh Tiwari, Chief Financial Officer,


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