Surging inflation is becoming a headache for companies and consumers alike. Rising input costs are putting a big drag on companies’ earnings, though some have managed to pass the prices on to consumers. Some companies are charging consumers more by reducing the burden of foodstuff. “The impact of inflation is visible.
The quantity of companies beating estimates within the March quarter earnings season from the Nifty 200 index is on top of those that missed them,” said Deepak Jasani, head of retail research at HDFC Securities. “However, an oversized a part of this growth is probably going to possess been driven by price hikes taken on the rear of inflationary pressure.” Sales growth has been good, but profit has grown at a slower pace thanks to higher staple costs and interest expenses, he added.
As input costs surged, companies have either raised prices or reduced the load of packets. April retail inflation surged to an eight-year high of seven. 79%, at the same time as the reading has remained above the central bank’s 6% upper tolerance limit for the fourth month in April. “There has been about 100 basis points impact on margins of companies under our coverage universe and 200 basis points impact on margins of Nifty companies,” said Gautam Duggan, head of research at Motilal Oswal Financial Services.
The results are in line with expectations, added Duggan, with performance being led by financials. Input cost pressure has been unprecedented and hence continues to be visible in contracting gross margins despite aggressive price increases, said Manish Jain, a fund manager at Ambit Asset Management. Jain said recent price increases are able to mitigate things, but the impact shall only be partially visible within the June quarter and fully within the following three months.
Also, maintaining a balance between growth and profitability is usually a tough thing, especially in these inflationary times, experts said. Companies don’t want to lose market share within the quest to take care of margins, Jain said. Also, maintaining a balance between growth and profitability is often a tough thing, especially in these inflationary times, experts said. Companies don’t want to lose market share within the quest to take care of margins, Jain said.