Nomura India has said that the margins of corporate are expected to remain under pressure as they are unable to pass on the rise in input cost due to poor demand, which will have a negative impact on banks, said PTI report.
In a note, Nomura India said, "With weak demand constraining pricing power and input costs rising due to currency weakness, margins are likely to remain under pressure."
"Apart from hurting profitability, the trend will also lead to deterioration of credit quality for banks and hence worsen the employment and investment prospects," the report warned.
It, however, also noted that the depreciating rupee is not the only reason for the rise in input costs, saying the high interest rates are also a big factor and more so after the liquidity squeezing measures introduced by the RBI last month.
Both these factors will ultimately have a bearing on GDP growth, Nomura said, reiterating that it has cut its FY14 growth estimate to 5 per cent from the earlier 5.6 per cent.
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