The Centre for Monitoring Indian Economy expects the post tax profit margins of India Inc to edge up by 1% points to 7.1% this fiscal. A fall in input prices, inflation and softer interest regime are expected to raise profit margins for businesses. Consequently net profits are expected to grow by 30.6% after falling by 6.6% in FY12.
Also a fall in international prices of raw materials such as crude, natural gas, edible oils and coking coal in FY13 are further expected to limit expenditure on inputs and increase profits for companies.
As per the economic think tank raw material expenses of the manufacturing sector area expected to be restricted to 8.2%, much lower than the sales growth of 10.1% projected for the year. Further softening of interest rates is expected to be beneficial for the manufacturing sector. Net profits are expected to grow by a robust 51.4% in 2012-13 as against 25.4% fall estimated for the last fiscal.
The non-financial sector too will grow by 11.2% in the ongoing fiscal on the back of a 9.9% reduction in the interest outgo. The government's grant of permission to aviation firms to raise $1 billion for working capital loans through the external commercial borrowing route, will reduce the interest costs for aviation companies.
Also with the electricity sector getting permission to refinance its debts with ECBs, costs are expected to dip for the industry. The removal of customs duty on imported coal and liquefied natural gas (LNG) is also expected to boost the bottomline of the sector.
The Reserve Bank of India in its last monetary policy lowered the interest rates by 50 basis points to encourage growth in the economy. As the cost of finance comes down, profit margins and hopefully investments are expected to go up. The RBI in the last fiscal had hiked interest rates 13 times to control the spiraling inflation. With inflation moderating in the past 2 months it has decided to shift its focus from controlling inflation to boosting growth.
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