Photo: Priyanka Parashar/Mint
Photo: Priyanka Parashar/Mint

Higher rates may impact consumer durables firms

The hike in policy rates will result in rise in interest rates and will have considerable impact on sales on consumer durables, says Kamal Nandi, executive vice president and business head of Godrej Appliances

New Delhi: Consumer durables companies are set to suffer with the Reserve Bank of India hiking key lending rate by 25 basis points to 6.25% on Wednesday.

The quantum of the impact, said Kamal Nandi, executive vice president and business head of Godrej Appliances, will depend on the quantum of increase in interest rates by banks and other financing institutions.

“The only impact which might happen is on the cost of consumer finance. But majority of this cost is borne by the manufacturers," said Manish Sharma, President of industry lobby Consumer Electronics and Appliances Makers Association (Ceama). Sharma is also the president and chief executive of Panasonic India and South-Asia.

“The hike in policy rates will result in rise in interest rates. This will have considerable impact on sales on consumer durables. About of 40% of high value durables in cities are bought through finance. Nationwide, about 25% of durables are purchased through finance. This is the chunk which will be impacted," said Nandi of Godrej.

Sachin Bobade, analyst with Mumbai-based Dolat Capital Market, said the impact of the policy rate hike will be limited to television and mobile phones. “With the early arrival monsoon, the peak season for air-conditioner and refrigerator is almost over. Finance takes place in big-ticket purchases. So, the impact will be limited to television and mobile phones," added Bobade.

Sales of air-conditioners have already hit a three-year low this March due to unseasonal rains in parts of the country. “Sales of air-conditioners and refrigerators have already impacted with early arrival of monsoon. The policy rate hike will now lead to more suffering," said to Nandi.

The market, however, reacted positively. The S&P BSE Consumer Durables index on Wednesday ended 2.32% higher at 20,382.34 points while the benchmark Sensex closed 0.79% up at 35,178.88 points. The RBI announced the rate hike before the market closed.

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