Also, the housing loans have become more expensive, while in many of the cases the banks are charging about 18-22 per cent for the two wheeler and personal loans. As a result of this, the bank credit growth has come down to about 24 per cent as against the recent high of over 30 per cent in January 2007.This will not only hit the banks' income growth, but also hit the companies immediately, due to higher interest outgo and slow down in the consumer demand. The early sign of this is seen in the slow down in industrial production to 5.8 per cent during the quarter ended March 2008 compared to over 10 per cent a few months ago.
The lag effect is also felt by the companies. According to estimates, sales growth of a cluster of 1,524 companies, excluding oil and gas and finance companies, was 14 per cent year-on-year during the quarter ended March 2008 as against the recent peak of 28.9 per cent YoY growth during the quarter ended September 2006.
Analysts expect this trend to continue going forward if the various issues, as mentioned above, remain.
"We think the Sensex earnings growth will slow down in FY09 mainly on account of margin pressure across the sectors led by input costs of power, coal and other raw materials. Also, higher interest rates and slower credit growth should pressure the banking sector," says Harendra Kumar, head research, Centrum Broking.
"Yes, moderation in earnings is quite visible. With increase in input costs (of materials, human resources and capital) margins are also under pressure. We have seen decline in margins of companies from the IT, automobiles, engineering, capital goods and logistics sectors" Says Bhavesh Shah, VP Research, Asit C Mehta Investment Intermediates.
Though not all sectors will witness a slowdown, certain sectors will be more vulnerable, such as financials and banking services, real estate, industrials, capital goods and auto, among a few others.
Image: A terrible day for the markets | Photograph: Indranil Mukherjee/AFP/Getty Images
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