Volatile commodity prices posing challenges to economic recovery: Ind-Ra

  • Industry News
  • Nov 29,21
The sustained pace of rising commodity prices is likely to pose challenges for the financial market, by way of abrupt volatility in key commodity prices such as crude oil, says India Ratings and Research (Ind-Ra) report.
Volatile commodity prices posing challenges to economic recovery: Ind-Ra

Mumbai

Increased logistical and raw material costs are posing headwinds for corporates, said India Ratings and Research (Ind-Ra) in a report. 

India Ratings has maintained an improving outlook on corporates for 2HFY22, as it expects the economic recovery to gain further traction in 2H, backed by the fading impact of the Covid-19 pandemic and favourable financing and external demand conditions. Entities with a strong market share and healthy balance sheet will continue to show strong earnings, although margin may moderate. “However, sectors which consume commodities will face challenges in the complete pass-through of input prices. Ind-Ra’s upgrade and downgrade trend highlights strong cash flows in manufacturing and services companies which have aided them to improve credit profiles by deleveraging and reducing debt,” said Nikhil Changulani, Analyst, India Ratings and Research.

Most sectors will continue to witness a surge in demand post the second covid wave as they were better prepared than during the first wave. The fiscal and monetary measures have backed economic activities by maintaining adequate liquidity. The entities have learnt to make quick structural changes after the first covid wave and are now better poised to face challenges if subsequent covid waves appear. Furthermore, Ind-Ra expects the Production-linked Incentive (PLI) scheme in specialty steel to lead to large capex announcements by both large and small steel companies. 

High commodity prices posing challenges
Ind-Ra observes that since the second covid wave, especially during 2QFY22, the risk appetite in system has reasonably improved. This has largely been driven by the strong corporate performance, buoyant external condition and sustained ultra-loose monetary policy conditions. Ind-Ra expects that the financing condition to remain conducive in 2HFY22, backed by the easy money conditions. The agency believes that easy money is a precursor for corporate capex, especially in the aftermath of crisis. However, owing to the tepid domestic demand, large capex activities are still not visible, barring a few pockets. The effect of an ultra-loose monetary policy across the globe coupled with an unprecedented counter cyclical fiscal has pushed global commodity prices at a multi-year high. The initial sign of high commodity prices is visible in the inflation print of various countries, including India. 

Ind-Ra expects continued high commodity prices to boost demand for working capital loans in 2HFY22, therefore, demand for short-term funding could go up. 

The sustained pace of rising commodity prices is likely to pose challenges for the financial market, by way of abrupt volatility in key commodity prices such as crude oil. “Additionally, elevated commodity prices in the medium term could hurt household demand, unless compensated by higher real income growth. The agency expects commodity-consuming sectors to face challenges in the complete pass-through of input costs, leading to a moderation in margins,” commented Nikhil Changulani. 

Courtesy: India Ratings and Research

Related Stories

Other Industrial Products
Volatile commodity prices posing challenges to economic recovery: Ind-Ra

Volatile commodity prices posing challenges to economic recovery: Ind-Ra

The sustained pace of rising commodity prices is likely to pose challenges for the financial market, by way of abrupt volatility in key commodity prices such as crude oil, says India Ratings and Res..

Read more
Other Industrial Products
Ind-Ra: ECLGS extension to help mid and emerging corporates recover post Covid

Ind-Ra: ECLGS extension to help mid and emerging corporates recover post Covid

The extension in the scope of the Emergency Credit Line Guarantee Scheme (ECLGS) will support the liquidity of around one-third of mid and emerging corporates (MECs), according to India Ratings and ..

Read more
Other Industrial Products
India’s GDP grows 1.6% in Q4 2020-21 aided by manufacturing push

India’s GDP grows 1.6% in Q4 2020-21 aided by manufacturing push

For the entire financial year 2020-21, the GDP contracted 7.3 per cent — a record low. In January-March last year, the economy had grown 3 per cent.

Read more

Related Products

Stainless Steel Materials, Grade 321

Minerals, Ores, Metals and Alloys

Pooja Steel & Alloys is offering stainless steel materials, 321 grade, in various shapes such as strips, sheets, pipes, tubes, etc

Read more

Request a Quote

Grizzly Feeder

Minerals, Ores, Metals and Alloys

Precious Mineral Processing Systems offers a wide range of grizzly feeder.

Read more

Request a Quote
Verified

Nickel Alloys

Minerals, Ores, Metals and Alloys

Shalco Industries Pvt Ltd offers Nickel Alloys. Shalco is a manufacturing division carved out of its parent company, treatment Shah Hastimal Laxmichand & Company, in 2000. The parent company has ma Read more

Request a Quote