Indian firms build inventory amid demand, geopolitical risk: Report

Indian companies are increasing inventory to meet strong domestic demand and guard against supply chain disruptions and commodity price hikes due to West Asia's geopolitical tensions, finds a Bajaj Broking report.

Indian companies are accelerating inventory build-up to meet resilient domestic demand while preparing for the risk of further commodity price increases and supply chain disruptions arising from geopolitical tensions in West Asia, according to Bajaj Broking's August Monthly Outlook report. The brokerage said companies have continued to report healthy business momentum despite a challenging global environment and are taking precautionary measures to safeguard operations.

"Many companies have accelerated inventory build-up to effectively cater to robust consumer demand while mitigating potential risks from further increases in commodity prices and possible supply chain disruptions. These risks could intensify should the conflict in West Asia escalate further or take a prolonged period to reach a resolution," the report said.

Demand Resilience and Q1 Earnings

The report noted that domestic demand has remained resilient despite fresh geopolitical uncertainties and rising global commodity prices. It said the Ministry of Finance, in its July Monthly Economic Review, had also projected domestic demand to remain resilient, although commodity price volatility continues to pose a key risk.

According to Bajaj Broking, the resilience in demand has been reflected in the earnings reported by companies so far during the April-June quarter. "This assessment is broadly reflected in the Q1FY27 earnings reported so far, which indicate steady top-line growth across sectors, albeit accompanied by persistent margin pressures arising from elevated input costs and geopolitical uncertainties," the report said.

Sector-Specific Performance

The brokerage identified banking and financial services, capital goods and infrastructure, and select IT and IT-enabled services companies among the sectors that have delivered better-than-expected quarterly performance.

It said banks and financial institutions maintained stable asset quality while recording healthy loan and credit growth, while engineering and infrastructure companies benefited from continued government capital expenditure and strong execution backlogs.

The report also noted that select mid-cap technology companies posted robust sequential revenue growth driven by strong deal wins and data centre projects.

Airlines, fragrances and flavours, and recycling companies also reported healthy quarterly performance despite disruptions linked to the ongoing conflict in West Asia.

Economic Resilience Amid Risks

While highlighting the risks from elevated crude oil prices and commodity costs, Bajaj Broking said India's economy has continued to show resilience. It pointed to average industrial production growth of 5.7 per cent in the first quarter of FY27 and average services production growth of 15.3 per cent during the first two months of the quarter, while noting that the narrowing rainfall deficit has reduced concerns over food inflation and broader price pressures. (ANI)

(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)