Rising Interest Rates Bite India Inc

Dalal Street may have ridden out the global financial market turbulence but corporate India is only just beginning to feel the heat.Burnt by rising cost of funds and a sudden reluctance from global banks to lend heavily, corporate India is likely to cut back on capex plans.

Morgan Stanley research estimates that capex in FY''08 could drop below 20 per cent of GDP for the first time in three years after hitting a high of 21.7 per cent in 2006-07.

Private corporate investments are also expected to drop from last year''s level of 13.7 per cent. That data is reflected on the ground with CFOs of major industrial groups like the Hindujas saying that corporate India is having to rethink investment plans.

It''s a double whammy for the corporate sector, said Prabal Banerji, CFO, Hinduja Group.

What is hurting the corporate sector''s plans the most is the sharp rise in the cost of funds over the past few months.

The cost of international borrowings even for the highest rated corporates have doubled to LIBOR plus 60 bp. Thanks to the tightness in global credit markets.

Source : www.indian-commodity.com