India Inc’s finance heads have welcomed Reserve Bank of India (RBI) MPC’s decision to keep the repo rate unchanged at 5.25%, calling it a balanced move that aims to contain inflation and support growth.
The RBI raised its retail inflation forecast to 5.1 % for the fiscal year from 4.6% estimated in its April meeting due to elevated global energy prices and pass-through to domestic fuel prices. Meanwhile, the GDP growth estimates were lowered 6.6% from 6.9% projected earlier.
“Inflation is rising, the rupee is under significant pressure. And these two are counter intuiting into economic degrowth if they are not checked. So it’s a prudent move that supports inflation. If the interest rate were increased, it would have had a negative impact on economic growth,” said Anand Agarwal, CFO, V-Mart Retail.
MPC’s decision is also being seen as a cautionary move that’s buying time to better understand an uncertain environment before making any moves.
“RBI is clearly taking a measured approach and they want to see how this pans out over the next two to three months, whether it is the oil pricing, the entire US and Iran talks, and whether it is the impact of monsoon and the sowing season, because that will pretty much determine how inflation will pan out and impact growth,” said Prateek Tibrewala, Corporate Finance Head, M3M.
Key risks for India Inc
Key risks for India Inc include rupee depreciation, sustained input cost inflation, pressure on margins, softer demand growth, rupee depreciation and continued global uncertainty. CFOs say that the inflation presently has not impacted domestic consumption as yet, however they are preparing for tougher times ahead.
Alpesh Porwal, CFO, Flair Industries said demand remains resilient in many sectors, but higher input costs and global uncertainties are creating some moderation. “We are not fundamentally changing our growth plans, but we are building more conservative assumptions into our forecasts and focusing on agility and execution,” Porwal said.
Agarwal added that an inflation of 5.9% projected for Q3FY27 is a significant jump from 3.8 per cent recorded in the April month, adding that tier 2 and tier 3 consumers where V-Mart operates, the impact of the jump will be significantly higher versus an urban customer. “No inflation is good for our customers, that remains unsaid. But I think it is going to be a tricky year, especially in view of the monsoon deficiency coming up,” he said.
Moreover, CFOs pointed out that RBI must maintain enough liquidity in the system as a fall would mean hiked interest rates from banks and financial institutions.
Tibrewala said that the cost of capital going up would again have an impact on the capex planned by the entire real estate industry. “Ensuring there are no liquidity shocks and that the rupee does not depreciate too sharply is something that will be closely monitored by the industry,” he added.
How CFOs are managing margin pressure
Corporates are prioritising procurement efficiencies, supplier diversification, productivity improvements and disciplined cost management to mitigate inflationary pressures, while maintaining strong cash buffers and disciplined capital allocation.
Porwal explained that while some cost increases can be absorbed through operational measures, sustained inflation in energy and commodities eventually impacts margins if it cannot be offset through pricing or efficiency gains. “The risk of margin pressure increases when elevated input costs persist over multiple quarters,” he said.
Operational efficiencies have also aided V-Mart Retail from margin pressure, Agarwal said while adding that passing down some costs to consumers cannot be ruled out if the input cost inflation persists.
“Companies that can balance growth with financial resilience will be best positioned to navigate the current cycle,” Porwal said.
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