Worrying signs for Indian Incs amid US, Europe economic crisis [Nov 2011]

November 25, 2011 6:05 am

India’s growth story continues to ride on strong domestic demand but worrying signs are emerging due to Europe’s debt crisis and a faltering US recovery, according to the latest ASSOCHAM Eco Pulse study that analysed second quarter results of 87 companies across various sectors.
High interest rates have pushed up raw material costs. The demand for automotive components has declined and delays in government clearances continue to hold back fresh investments. Though exports to Europe and the United States have fallen, overall exports continue to be on upswing.
“Second quarterly results suggest healthy state of affairs currently for Indian corporates as emerging economies led by China and India continue to lead the world economic recovery. But fears of global financial contagion pulling down growth in developing countries are mounting. Global investors are taking flight for safety, causing anxiety in the markets,” said the study. According to the study, in the financial sector, there are strong disbursements despite higher interest rates matched with healthy growth in other incomes.
“In the IT and ITes sector, there are no visible signs yet of immediate fall in business to Europe and the US. Order books are healthy but prices have fallen or remain unchanged. Certain macroeconomic concerns related to Europe have though crept into minds of several corporates”, the study reveals.
FMCG firms are unable to pass on higher input costs to customers due to competitive market conditions, said the study. Automobiles, real estate and other industries could hold on to profits, though the margins are declining. Power companies have declared subdued results as production costs have gone up but revised tariffs are difficult to put into effect.
Depreciating value of Indian rupee has imposed higher costs of imported intermediates and raised doubts among foreign investors about dollar returns on their investments, said the study.