A quick raise of hands in a room packed with chief financial officers (CFOs) from India’s leading companies, attending the CFO India Strategies in Mumbai showed that half of them reckoned that growth rates are expected to slowdown in the coming days. The rest are of the opinion that the rates of growth, albeit slow, will not cause any serious catastrophes.
Speaking as a panel member in the discussion based on the CFOs perspective on the downturn and high inflation and interest rates, S Sreenivasan, CFO of Bajaj Allianz General Insurance said: “There are signs of a slowdown, but it’s more like a shallow ‘U’ trough rather than anything deeper.” The discussion hovered around the implications of high inflation and thereby higher interest rates impacting corporate profitability and especially expansion plans. “Companies that have already initiated their expansion, will have to face the brunt more than those with green field expansion plans,” reckoned Sreenivasan. Others who were about to expand will be waiting for more clarity to arise, he added.
Here the sentiment was that small and medium sector companies, especially in the real estate sector would be the ones to feel most of the impact. The larger and well-capitalised companies would tide over the tough times. And in light of such uncertain circumstances where even the initial public offer (IPO) market has been in the lull, private equity financing will get more importance, reckons V Balasundaram, CFO Frost & Sullivan, another panel member. He also believes that the inflation juggernaut has just taken off and will not relent in the times to come. “It’s like a locomotive that has started off and will not stop so fast,” added Balasundaram.
The CFO community was also unanimous over the fact that high inflation was here to stay and that the Reserve Bank of India’s target of getting inflation down to 7% by March, as mentioned in the monetary policy announcement, was rather impossible.
Companies and CFOs needed to build this in their strategy for the times ahead and plan accordingly.
Moreover, there was a concurrence over the fact that India’s growth story would continue to unfold, even if the rates would be lower for the year. “Unless we record a growth rate of around 3.5% levels, we should not be worried. Even a rate of 6% would be good enough and better than many countries,” reckons Sreenivasan.