The latest hike in short-term interest rates by the Reserve Bank of India (RBI) is set to give Dalal Street bulls and corporate honchos a run for their money. While stock markets are likely to get a battering on Monday, India Inc has already started taking a close look at the impact of the rising interest rates on its bottom line and fund-raising plans for new projects.“But it looks like the crucifixion of the bulls will take place on Monday itself. The focus would have been speculation on quarterly results. But the Reserve Bank of India has chosen to deal a nasty blow to the bourses with its tightening measures,” said an analyst with India Infoline. Adding to the worries, the volatile movement of the rupee, rising crude oil price and uncertain global market movements will also play on the investor’s mind.“Banking stocks will come under the scanner. The latest RBI hike will lead to another one per cent rise in interest rates across the board. Banks will have to start worrying about defaults on account of the soaring rates,” said BSE dealer Pawan Dharnidharka.Though fourth quarter (January-March 2007) results of the corporate sector are expected to be good, the main worry will be the coming quarters. The rising rates are likely to upset the fund-raising plans and performance of many corporates. “The step taken by the RBI would sharply increase the interest rates on short-term credit to both small and medium industries, and raise prices of products to uncompetitive levels,” said Indian Merchants Chamber president Nayan Patel.The spiralling rates have come at the worst time as India Inc was in the process of chalking out investments worth thousands of crores in new projects. “The government and regulators should have tried to tackle shortages of certain important commodities and ineffective delivery system. These are the basic causes of current phase of inflation spiral. not excess money supply or liquidity,” said the chief of a consumer goods company.In fact, many sectors like automobiles, white goods and capital goods are likely to bear the brunt of rising rates. “The RBI move will be a blow to indigenous manufacturing industries, which are struggling to compete with cheap foreign goods that are flooding Indian stores as a result of the reduction in customs duties over the years,” Patel said.The impact on the interest burden of India Inc will intensify in the coming months. Interest costs of corporates have already started ballooning. Figures show that 935 companies paid Rs 31,748 crore as interest costs for the third quarter of 2006 against Rs 23,632 crore in the same period of last year. This 34.3 per cent rise in costs has to do with the rise in interest rates in the last one year. In the third quarter of 2005, the rise was 21.5 per cent, which came after a fall during 2003 and 2004.But for long-term investors, the coming days could give good opportunities. But for markets and the corporate sector, the days ahead are likely to be choppy.
