The sharp upswing in the dollar and the resulting softening of the rupee has set the context for another phase of volatility. If the exchange rates continue with this trend, exporting industries will benefit significantly. But, the commodity consuming companies and importers are heading for some rather testing times.

The situation is grim for industries that use commodities, as raw material prices are soaring and product prices are not easy to raise. While the early inflation in material costs could be absorbed or passed on, the recent spikes have been too sharp to pass on. Companies are struggling under the weight of inflation and are worried if a further sharp hike in commodities will hit them hard. The low financial costs had  brought home immense benefits for companies and the inflation in material costs threaten to take away the benefits from low finance costs.

This scenario is just emerging and we really don’t know how this will play out. The numbers of consumer facing industries in the last quarter will be closely watched and we need to see how these companies manage price hikes in the first quarter. Once further commodity price hikes happen, markets will take cues on the ability of companies to pass on cost hikes and to ensure the sales volumes are still growing at a fair clip.

The first quarter is a very significant test for companies. They need to balance growth and cost imperatives and still produce market beating profit growth. That is a significant challenge for markets to overcome.

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