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Sowmya Sundar

INVESTORS looking at a one-year lock-in period can consider the fixed deposit programme of OCL India.

The company offers interest rates of 7.5 per cent for one and two years and 7.75 per cent for three years.

OCL is into the business of cement and refractories. It will be able to get the benefit of a buoyant commodity cycle at least for a year.

Longer tenures can be avoided, as the incremental rate of return is lower, and it might be better to reconsider your decision after a year.

A quarter percentage point hike in repo rate (the rate at which commercial banks borrow from the Reserve Bank of India) in the latest Credit Policy, signals that a hike in interest rates cannot be postponed for long.

Banks too have expressed interest in hiking short-term deposit rates. The risk of an interest rate hike has been there for quite some time but, now, it appears inevitable.

Therefore, it is prudent to stick to the one-year FD programme if incremental returns are not attractive enough to match the expected hike in interest rates.

The commodity sector, both steel and cement, where OCL has a presence, is on an upturn.

The strong demand from China and the Government's thrust on infrastructure have increased demand over the past two years. In the near term, prospects appear bright.

However, over a two-year period, the commodity cycle might reverse. Any slowdown in China might have an adverse impact on the demand and, hence, realisations.

Moreover, most companies are expanding capacity. Once that is in place, realisations might taper off.

The domestic infrastructure segment is already showing signs of a slowdown. The GDP forecast has been reduced to 6 per cent from the earlier 7 per cent.

Rising crude prices too could dampen sentiment and shave off profitability as transport and logistics costs increase in the next few quarters.

The squeeze in margins could lead to lower cash generation to meet interest commitments. This could increase the risks.

The company now generates sufficient profits to cover interest costs and, hence, might not face problems meeting interest payment commitments in the near future.

If the commodity cycle reverses, the profit cushion may decline. Longer tenures can, therefore, be avoided.

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