With the wholesale price index (WPI) shooting up to a 13-year high of 11.05% y-o-y in the week ending June 7, from 8.75% y-o-y in the previous week, India Inc has begun to feel the jitters. FE spoke to a cross section of the industry for their views on how bad their industry is likely to be hit.

A bumpy ride for auto industry

The rising inflation will have a cascading effect on the Indian automobile industry. ?The rise in inflation will have adverse impact on the industry that will not only see interest rates getting further hardened but also a drop in demand due to the squeeze in purchasing power,? said Abdul Majeed, partner, PricewaterhouseCoopers, who leads the auto practice. He added that with the expected drop in demand, companies? bottomlines will get impacted.

Adds an analyst from Religare, ?The margins of the auto manufacturers who have been selling products at lower price and absorbing the burden will be hit. The ones that have been revising the prices and passing on the burden will be better placed given the fact that the sales growth does not fall due to squeeze in purchasing power.? Two-wheeler and commercial vehicles segment are expected to get the worst hit. When contacted, a spokesperson from Tata Motors, said, ?For near-term economic condition, high inflation is a challenge.?

The industry has been struggling to remain afloat in the unfavourable economic conditions including rise in fuel prices, input costs and contraction of vehicle financing. The manufacturers had undertaken revision in prices of vehicles and launching CNG/LPG variants. To spoil the game further, last Friday, the finance ministry announced the introduction of a specific rate of excise duty ranging from Rs 15,000 to Rs 20,000 on cars with engine specifications of 1500 cc and above, in addition to the existing 24% excise duty.

?Luckily, we are not affected by the recent excise duty hike on 1500 cc and above cars. We do not plan to have engines above 1.4 litre in our cars,? said Rajeev Kapoor, president and chief executive officer, Fiat India Automobiles Private Limited. He added that the company plans to ?hold prices? and that there was little hope seen in steel and crude prices to soften.

Cement sector on swampy ground

For the cement sector, a likely slump in real estate owing to inflation will be bad news. According to a Mumbai-based analyst, ?Rising inflation will result in hardening of interest rate, which will impact the demand for real estate. The real estate sector, which is already feeling the inflation heat, will see a further dip in demand impacting the demand for cement. If inflation keeps rising, there is a possibility of infrastructure projects slowing down.?

Bitter sweet pill for pharma

The pharma industry, which has recently stolen the limelight with the Daiichi Sankyo-Ranbaxy deal, sees inflation as a challenge. According to Percy Birdy, CFO, Glenmark Generics Limited, ? Indian pharma companies have demonstrated in the past that by focusing on internal efficiencies and controlling costs, they can maintain margins.? Also since many pharma companies export to global generics market, the weaker rupee will help them to an extent to tide over this impending inflation issue, he said. ? Having said that, India being a largely branded generics market with innumerable pharma companies operating in each and every therapeutic segment, competition is intense and so passing on cost inflation will be a challenge. This would also mean that the consumer will not bear the entire inflation burden,? he added.

No major impact on IT

Although the IT sector may not be directly hit, doing business can get costlier.

?Inflation can have a sociological impact on the cost of labour. Also, IT industry does not borrow much and so it will not see the impact on the cost of capital but it can impact the dead funds,? Deepak Ghaisas, CEO, India operations and chief financial officer, i-flex Solutions, said.

?The inflation will not impact the IT service industry as compared to the other industries. But we will see the cost of entire business going up as the cost of setting up a development center will eventually go up with the prices of steel and cement rising,? said Harit Shah, an analyst with Angel Broking.

Consumer durables worried

While higher spending by consumers was welcome, high inflation was a cause of worry, said VN Dhoot, chairman, Videocon Industries. Ravinder Zutshi, deputy managing director, Samsung India said, ?The rising inflation is definitely a cause of concern, but the consumer durable market has yet not witnessed any slump in demand. The rise in raw material cost and high inflation is not a healthy sign for the economy and the sector. Only if monsoons take off well, can the sector heave a sign of relief.?

Real estate to cash in

What has the inflation in store for the real estate market, which is slated for a correction? According to Niranjan Hiranandani, managing director, Hiranadani Constructions, ?Whenever inflation is at its peak, there are no better investments than investing in real estate market. Hence, real estate market will witness more funds being infused. This has been happening historically. Thus, high inflation means more investments in the real estate market.? Competitor Hemant Shah, chairman, Akruti City comments, ?High inflation touching 12% is a cause of worry for real estate developers as the cost of construction and cost of labour will now shoot up drastically. Cost of construction and labour is anyways rising by 15% every year. It thus seems that the real estate market is set for some correction which will have a long-term impact.?

FMCGs look at price hike

The FMCG sector expects the inflation to lead to a rise in product prices. An industry professional says the high levels of inflation was expected. ?This will certainly impact prices in general. I expect a price hike in petrol and diesel with the inflation touching these levels,? he added.