Bloomberg News

Merrill’s Deshmukh Says India Rates May Hurt Asian Paints, Titan

October 25, 2011

Oct. 25 (Bloomberg) -- Prasad Deshmukh, an analyst with DSP Merrill Lynch Ltd., comments on the impact of India’s interest rate increase on consumer goods.

The central bank today raised rates for the 13th time since the start of 2010, boosting the repurchase rate to 8.5 percent from 8.25 percent. Deshmukh spoke in a telephone interview from Mumbai.

“The impact on FMCG will not be so material as far as demand is concerned. The immediate impact may not be there, but if inflation comes down as a result of the policy, it will be positive for margins. Secondly, as long as interest rates move up, they lead to higher yield on your cash, so the other income component can move up to that extent.

‘‘This can impact companies like Asian Paints and Titan, which are part of discretionary spending. This would not impact companies like ITC, Hindustan Unilever or Dabur. Asian Paints may be impacted because housing growth and demand for paints is subdued.

‘‘For Titan, some part of the demand is linked to personal loans. Given that they have become costlier by a couple of percentage points over the last nine to 12 months, there can be an impact on the watches business and even the jewelry business.

‘‘I don’t think food inflation will be controlled by things like these, mainly because the reason for food inflation is more consumption by a population that is moving more and more towards a middle class income level.’’

--Editors: Indranil Ghosh, Abhay Singh

To contact the reporter on this story: Malavika Sharma in New Delhi at msharma52@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net


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