RBI finds no evidence of de-stocking by firms despite note ban, GST

RBI finds no evidence of de-stocking by firms despite note ban, GST

Despite demonetisation and implementation of the Goods and Services Tax (GST), there was no evidence that listed private sector manufacturing firms have de-stocked or liquidated their inventories, the Reserve Bank of India (RBI) said.
In the report, analysing the performance of listed non-government, non-financial firms the RBI said these firms posted a turnaround in 2016-17 mainly due to the improved performance of the manufacturing sector, even as losses incurred by the companies in the services sector (other than in information technology) operated as a drag on the aggregate performance. The turnaround has extended into 2017-18. While the first quarter of the previous financial year saw contraction in operating profits for the corporate sector due to moderation in sales growth coupled with increase in expenditure, performance revived in the second quarter due to moderation in input costs.

Demand pick-up

“Demand conditions in the manufacturing sector further picked up in Q3:2017-18 as evidenced from the sales growth and this improvement was not attributable to favourable base effects,” the report said.

“In spite of the transitory shocks imposed by demonetisation and GST, there was no evidence of de-stocking and liquidation of inventory by the listed manufacturing companies,” it said.

The report said the revival in nominal GVA (gross value added) growth of the manufacturing sector in third quarter of 2017-18 was supported by steady growth in primary, intermediate, construction goods and consumer durables.

“The growth in sales as well as nominal GVA of capital goods was in sync with the fixed assets investment of the manufacturing sector in H1:2017-18.” it said. The study noted listed manufacturing companies reduced current assets and increased long term investments in the first half of 2017-18, ‘possibly hinting’ towards a revival in capex cycle.

“Further revival in the demand scenario will be the key for the private corporate sector performance in the coming quarters as there has been no signs of respite from input cost pressures,” the RBI added.

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