Commodity prices to hurt India Inc's margins

Rising commodity prices are set to hurt margins of India Inc in the on-going fourth quarter of FY 11, even though revenues are seen higher than the previous year, ratings agency Crisil said on Monday.

"We expect the operating profit margins to remain under pressure due to rising commodity prices. Also, intense competition is limiting the pricing power of corporates, and players are being forced to largely absorb the rise in input costs," Crisil Research Director Nagarajan Narasimhan said.

Crisil, which analysed companies across 23 industries, feels auto and cement sectors will be impacted due to rising input costs, while information technology will also see a dip in margins due to the appreciation of the rupee and wage inflation.

Crude oil, one of the most critical commodities, is hovering at over $100 per barrel for some weeks now due to political unrest in the Middle-East and African nations such as Libya, making policymakers uncomfortable.

However, rising costs will give succour to the steel sector, where margins will improve on the back of increase in prices and strong demand.

Crisil said yarn manufacturers will also not be hit by rising prices because of their ability to pass on the extra costs to customers and the presence of alternatives like altering the raw material mix by using more of polyester.