First time in the last four years, RBI has raised benchmark lending rate. This increase in interest rates will eventually result in a decrease in corporate profits, says G M Rao
GMR Group chairman G M Rao fears that the corporate profits will fall in the near future.
Explaining the rationale behind this, he said that the world is on an "increasing trend of volatility and unpredictability."
"We are witnessing US trade restrictions and sanctions for the other economies of the world. The US also started cutting wasteful expenditures and blocking aids to global bodies such as North Atlantic Treaty Organization (NATO). With their inward focus on boosting the economy, the US economy has really started strengthening, thus resulting in money flowing from emerging economies such as India to the US," he said while addressing the shareholders during the 22nd annual general meeting of the company.
These factors have resulted in the depreciation of the rupee and the Indian economy is feeling the ripple effect of depreciating the currency.
After US trade restrictions, China also started putting restrictions. As a result, commodity prices have increased; with oil sanctions put by the US, oil prices are also on an all-time high. All this has resulted in the increase in inflation, thus increasing interest rates.
"First time in the last four years, RBI has raised benchmark lending rate. This increase in interest rates will eventually result in a decrease in corporate profits. Further, our banking sector is also going through a very challenging phase. With the banking stress, the liquidity from the market has virtually vanished," said Rao.
He said that it will be challenging to meet the increase in energy demand due to stress in the banking sector combined with a squeeze in liquidity.
In fact, during this month, the spot power prices had considerably shot up. As per IEX data, the per unit price was Rs 10.12 as on September 17.
"Since the economy is growing and we have to meet the huge demand of basics such as power. For that liquidity is essential. In the last few days, power tariff has gone as high as Rs 14 per unit, such is the demand," Rao said.
Thus, the company would be very cautious about this increase in interest rate and banking stress, since low interest and liquidity are the lifelines for the infrastructure business.
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