Friends,
RBI has thought it fit to raise the Repo-Rate by 50 bps to 9% as also the CRR by 25 bps to 9%. This was in the air alright and RBI has acted rather too harshly particularly when the crude is down to under $121 . Since 2007 CRR has been raised up from 6.25% and since 2005 the repo rate has been up from 6.25%. POst announcement the Nifty lost heavily and closed 4189 points (-142).
The RBI action may not immediately affect the profitability of corporates as most of the leading ones are leveraged very mildly unlike during late 1990s and 2000-2002. That was the period when the corporates had borrowed heavily for expansion programmes , locally and abroad. Money had just become less scarce due to opening up of economy earlier. The inflation had started to moderate but RBI was late in its response and did not reduce rates in good time.
The case is different today and should be views likewise. THe adverse impact will come when RBI , once again, would be failing to see reason for the reversal of dear money policy. I think the banks would not raise long term deposit rates. Market may and should take RBI action in stride for the time being as the corrective movement in indices has already taken place.
The reverse repo rate is maintained at the old level , RBI simply has barred people from placing money with it. The borrowers of high rating will find it easier to borrow and the weaker ones will be shelving plans to expand on borrowed funds due to apathy of the lending institutions in light of recent developments. The efficiency of capital will see improvement through continuous effort of the corporates. PEs wil be lower but only from higher profits , profits fall the PEs would go up in the course of time because it is blow alright but not deadly or irreversible.
I would sign off not on pessimistic note.
HariOm,
krsnaKhandelwal
