The rally in global commodity prices is expected to cap a major upside in India Inc’s margin expansion going forward.
With gross and EBITDA margins in several sectors already at very high levels, analysts at Kotak Institutional Equities (KIE) pointed out that the key question that investors will have to grapple with is whether companies would be able to sustain the margins at higher levels of commodity prices.
In case the economic growth recovery disappoints, they believe that companies will have to reduce margins to grow volumes.
“We note that economic recovery is still quite patchy with only parts of urban discretionary consumption holding up well. The ongoing results season has not provided any signs of an incipient economic recovery and management outlook on demand for the next 2-3 quarters is generally subdued. We note that Q2FY17 volume data was muted for a number of cement and consumer staple companies,” Kotak Institutional Equities (KIE) said.
