Rising interest costs eat into India Inc’s bottom line

Significantly, interest costs of India Inc had fallen by 0.92 per cent in the previous year (2004-05). ‘‘Banks started hiking rates in the last year. Interest costs will go up further in the current year,’’ said a banker.

On the other hand, as per a study by The Indian Express, fourth quarter ended March 2006 was slightly better with 914 companies showing a 22.61 per cent (as against 15.15 per cent in the same period last year) growth in total income and a 15.95 per cent (10.28 per cent) increase in net profit.

‘‘By and large, the performance of Indian companies has been on expected lines and most of them have fared well. Petroleum companies have been the worst affected this fiscal but that was expected as the government has not allowed them to hike local prices,’’ Kejriwal Research & Investment Services director Arun Kejriwal said.

The sector that benefitted the most in this fiscal has been metal companies which have outperformed expectations on the backdrop of upswing in metal prices globally.

Analysts believe that infrastructure, infotech, textile, metal and auto sectors have been the major growth drivers for this fiscal. ‘‘I think the major factor responsible for the growth in this fiscal has been the government’s continued thrust on infrastructure development which has benefitted engineering and infrastructure companies.

The increased domestic consumption and buying power of the Indian middle class also played its part in helping the profit growth of Indian companies,’’ Brics Securities head of research Amitabh Chakraborthy said.

Experts, however, sound a word of caution saying that high global oil prices and hardening of interest rates are likely to slow down India Inc juggernaut with analysts forecasting a lower corporate earning growth in FY’07. ‘‘In 2005-06, the earning per share was in the region of Rs 560-565. Looking forward, we expect that due to the firming up of interest rates and increasing commodity prices, the EPS for FY’07 would be close to Rs 680,’’ Angel Broking’s chairman and managing director Dinesh Thakkar said.

Corporates had benefitted from lower interest rates in the last couple of years. Further, restructuring and consolidation by many companies also added to their bottom lines.

Dalal Street analysts have been attributing good corporate performance as one of the key reasons for the sharp rise in share prices in the last one year. The current fiscal (2006-07) will prove to be a tough year for corporates as well as markets.