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The larger than expected half-a-percentage point cut in interest rates by the US Federal Reserve could brighten the near term operational outlook for the corporate sector and thereby support higher market valuations.

Borrowing / funding costs may decline for companies, both in the financial and non-financial sectors. The reduction in cost-side pressures will have to be passed on to the lending side in case of banks and finance companies and in product prices, in the case of non-financial companies.

Lower interest rates could also be positive for consumption and demand trends. For Corporate India, they could help maintain continued growth in sales volumes and counteract any pressure on account of lower per unit margins.

In the circumstances, the near term operational performance of the corporate sector will benefit from the tonic of lower interest rates. This will be positive for stock valuations.

BL Research Bureau

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