Surge in global commodity prices may push India Inc’s margins to a decadal low

In FY22, corporate India’s profitability surged to multi-year highs, driven by a sharp drop in global commodity costs due to a fall in demand during the pandemic, along with strict cost-efficiency measures undertaken by corporates. The gross margin for the

universe, excluding financials, is expected to drop to a decade low of 29.4%.

“Sectors reliant on global commodities would see the maximum pain led by significant price volatility that will have a cascading effect on Corporate India’s margins,” said Gautam Duggad, head of research, Motilal Oswal Financial Services. “Metals, cement, oil & gas sectors’ margins will likely be impacted adversely in FY23.”

Commodity prices have finally started to correct sharply from their peaks. The benefits of lower input costs should trickle down to corporate profitability going forward, Motilal Oswal estimates showed. Sectors such as cement, metals, oil & gas, consumer, auto, and specialty chemicals, severely affecting FY23 margins, will be the key drivers for FY24 expansion in profitability, said the brokerage.