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RBI has a tough road ahead - Views on News from Equitymaster
 
 
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  • Sep 1, 2009

    RBI has a tough road ahead

    The RBI must surely find itself stuck between a rock and a hard place at present. For one the drought has threatened to thwart India's GDP growth for this fiscal. Though India's growth for the first quarter of FY09 (April-June) came in at a decent 6.1%, whether it will be able to sustain the same seems doubtful. What is more, the weak monsoons and its subsequent damage to crop production has meant that food prices have scaled higher and raised the ugly specter of inflation. The RBI has stated that the food price inflation is already around 10% and that its key challenge is to keep inflationary pressures low.

    Indeed! Because the dilemma for the RBI is that if it raises interest rates to put a lid on inflation it will be a double whammy for the Indian economy as growth will again be curbed. Having said that, the RBI seems pretty sure of the interest rates not coming down any further given the state of affairs. It has ruled out any further cuts and could even reverse its expansionary stance if the drought-induced inflationary prices go out of control.

    These are indeed challenging times for the central bank as it looks to walk the tight rope between curtailing inflation without hurting economic growth.

    Pharma not immune to the slowdown
    Despite the global economy including India slowing down, the pharma sector does not seem to have been unduly affected. Or at least that's what Assocham (The Associated Chambers of Commerce and Industry of India) believes.

    As reported in a leading business daily, the Indian healthcare industry posted a growth of 42% YoY in net profits in the first quarter of the current fiscal. But has the Indian pharma sector been really immune to the ills that have afflicted the world economies? Not really. While the scenario this quarter was certainly better than the last two quarters of 2009, conditions have not dramatically improved. For instance, in the semi-regulated markets such as Russia and the CIS, companies are making efforts to tighten the working capital cycle and are focusing more on receivables rather than sales.

    Conditions in the US have been tough for many companies. While some such as Ranbaxy and Sun Pharma are mired in problems with the US FDA, others such as Glenmark have been seeing a slowdown in the number of product approvals from the US FDA.

    On the custom manufacturing front, while the long term trend of global innovators outsourcing to India looks intact, in the medium term pressures exist as the latter look to rationalize their inventory.

    Thus, while the pharma industry has perhaps not been as badly impacted as some other sectors, it has had its share of ups and downs too. Having said that, pharma companies are expecting things to start looking up from the third quarter onwards and while performance for this fiscal will not be much to write about, growth is expected to be stronger FY11 onwards.

     

     

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