(MENAFN- KNN India)
New Delhi, Aug 24 (KNN)
As Corporate India navigates through the lingering effects of the pandemic, inventory levels remain a significant concern.
Data from Q4FY24 reveals that the inventory-to-sales ratio among companies stood at 65.4 per cent, surpassing the 64.1 per cent reported a year earlier. This marks a continued rise from previous quarters, highlighting ongoing weaknesses in consumption demand.
Despite the elevated inventory levels, recent insights from the Reserve bank of India's August 2024 bulletin suggest a more nuanced economic outlook.
The RBI's report noted high capacity utilisation, robust corporate balance sheets, and sustained credit demand as indicators of a potentially favourable environment for future investments.
Historically, the inventory-to-sales ratio peaked at 113.8 per cent
during the peak of the COVID-19 pandemic but had stabilised between 49 per cent
to 55 per cent from FY08 to FY19.
The current persistent ratio above 60 per cent for nine consecutive quarters suggests that many companies, especially in critical sectors, may need to moderate production and investment to address high inventory levels.
The RBI's survey also highlighted an increase in the number of surveyed companies, growing from 145 in March 2020 to 803 by March this year. However, this number still falls short of the 1,386 companies surveyed in September 2008.
Suman Chowdhury, executive director and chief economist at Acuité Ratings & Research, observed that inventory build-up is particularly notable in the automotive sector, especially in passenger vehicles.
Chowdhury attributed this trend to factors such as election impacts and extreme weather conditions but remains hopeful for reduced inventory levels during the upcoming festive season.
Capacity utilisation rates, which have consistently exceeded 70 per cent since Q3 FY22, reached 76.8 per cent in Q4FY24. This figure contrasts with a peak of 83.2 per cent in Q4FY11 and indicates a gradual recovery.
However, experts caution that high capacity utilisation does not necessarily guarantee a robust investment cycle.
Anitha Rangan, economist at Equirus Securities, emphasised that while there are positive signs, particularly in new-age sectors like renewable energy and infrastructure, traditional sectors such as cement and textiles may see a slower recovery.
Paras Jasrai, senior analyst at India Ratings, pointed out that while the high capacity utilisation reflects improving private sector investment demand, its sustainability remains uncertain given recent fluctuations. Nonetheless, he remains optimistic about a gradual improvement in consumption demand through FY25.
(KNN Bureau)
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