India Inc seems to be well prepared to take the rising cost of money and market volatility in its stride. None of the corporations is planning to postpone their expansion plans even as some may go slow on their initial public offers or find alternative means to raise funds.
ICICI Bank, the country's largest private sector bank, recently carried a reality check on its 40 large and medium borrowers, which form a chunk of its corporate loan portfolio. The result of the study is reassuring.
"All plans of Corporate India are on track. Only one mid-size corporation, which had planned to go for an initial public offer, has changed its plan and instead will place equity with a private investor," Kalpana Morparia, joint managing director of ICICI Bank, told Business Standard.
According to her, the corporate sector has the resilience to tide over uncertainties. "Unlike in mid-1990s, companies are not over-leveraged. Besides, there is no huge rise in commodity prices. We do not see any problem anywhere. The plans of all our corporate clients are on track," Morparia said.
The Sensex which rose to 12,612 on May 10 had lost over 29 per cent and slipped to 8929.44 on June 14. Subsequently, it has gained 19 per cent to climb to 10,609 on July 1. On the interest rate front, the yield on 10-year government paper has crossed 8 per cent and is pegged at its three year high of 8.12 per cent.
India Inc has built up a cash and bank balance of over Rs 1,00,000 crore for expansion, diversification and acquisitions. Based on their cash reserves, almost all frontline companies have drawn up their capital expenditure plans.
Pharmaceutical companies led by Dr Reddy's and Ranbaxy and others such as Satyam Computer, Maruti Udyog, VSNL, Tata Coffee, Tata Chemicals, Amtek Auto, Tata Motors, Mahindra & Mahindra, Aban Lloyd and Jain Irrigation have already made acquisitions.
Public sector Neyveli Lignite, Steel Authority of India, NTPC, GAIL, Bharat Heavy Electronics and National Aluminium Company are planning expansion and modernisation of their plants while in the private sector, Reliance Industries, Tata Motors, Maruti Udyog, Mahindra & Mahindra, Tata Power, Larsen & Toubro, Ashok Leyland, Jaiprakash Associates and many others are planning to set up new units in India and overseas.
Tata Motors plans to invest Rs 2,500 crore in Uttaranchal to make its fast-selling light commercial vehicles and Tata Power is spending Rs 860 crore or a new 250 mw coal-based unit at Trombay thermal station. In the public sector, SAIL plans to invest Rs 800 crore in developing coal mine and another Rs 667 to revive Iisco and modernise Rourkela Steel
Kishore Chaukar,MD, Tata Industries, said India Inc has matured enough to tackle the rise in interest cost. Admitting that rising interest rates would translate into overall cost jump, he said it would call for better management in financing. "It would have no adverse impact on the future expansion of the industry," Chaukar added.
Sumant Sinha, CFO of Aditya Birla Group, said interest rates, even after subsequent rise over the past few months, had not reached to the extent of forcing India Inc to stall its future capital expenditure.
"Decisions on investment for growth are long term in nature. The situation, which is far better than what we witnessed in mid-1990s, and has not reached a level were we take a re-look on our expansion. I think, the industry is so far unfazed with the rise in interest rates," Sinha added.
The chief financial officer of a large manufacturing unit pointed out that India Inc's balance sheet was showing handsome internal accruals and unless there was a dramatic rise in interest rates, there would not be any drastic changes in expansion plans.
"The interest rate level now, despite the rise, is about half of what we had seen in mid-1990s. Where is the crisis? The confidence level is still very high," he said.
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