Logistics costs and commodity prices dampening India Inc profitability: Report

rising logistics costs

As the global economy is adjusting to the aftermath of the pandemic, the Indian economy is also showing signs of rapid recovery with favourable finance and external demand conditions. As a result, many economic analysts are revising their forecasts pertaining to real GDP growth for FY2022.

As per the recent report by Ratings India, the corporates have been showing a consistent and faster than expected improvement, which is to continue throughout H2, the rising commodity prices along with inflation in logistics cost are dampening the their profit prospects.

According to the rating agency, organisations with strong hold on the market and with robust balance sheets will shall not have an impact on their earning, though the margins can fluctuate. On the other hand, commodity-dependent sector will find it hard to cover their input prices in entirety.

However, there is a ray of hope as the Report also suggests that there has been an increase in the willingness to take business risk after the 2nd wave of the pandemic, specially since Q2FY22. The sentiment is backed by strong corporate performance, promising external conditions and an ultra-loose monetary policy.

Realizing the shift in trends, Swiss brokerage UBS Securities revised their growth projection for the economy from 8.9% in September to 9.5% in December, and PMEAC chairman Bibek Debroy sees the economy clipping at 10 per cent. The Report also hinted that high commodity prices will result in subsequent higher demand for working capital loans in H2, pushing further the demand for short-term funds.

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