US, China, UAE drive India's first export contraction in nearly 2 yrs

Exports to seven of the top 10 destinations of India, including the US, the United Arab Emirates (UAE), and China witnessed contraction in October, leading to the country’s overall outbound shipments dipping for the first time in two years, according to the data compiled by the Department of Commerce.

These 10 nations have a share of 47 per cent in India’s overall exports.

The three nations that saw positive growth in exports were the Netherlands (21.6 per cent), Singapore (24.8 per cent), and Brazil (57.7 per cent). The US, which has been India’s largest export market for a decade, saw a dip in its value of exports by a fourth to $5.38 billion in October, according to the data reviewed by Business Standard.

The UAE, which signed a free trade agreement with India earlier this year, witnessed 18 per cent fall in shipments at $1.98 billion.

Similarly, a slowdown in economic activity in China due to its zero-Covid policy and real estate market crisis resulted in 47.5 per cent degrowth in outbound shipments to the country to $947 million. 
 

The ICR indicates the number of times a company’s operating profit is, in relation to its interest expenses.

Analysts say this signals the end of the cycle of corporate deleveraging seen after March 2020. “A boom in corporate profits in the post-pandemic period allowed companies to prepay debt and lighten their balance sheet. The cycle now seems to be over and operating metrics and financial ratios worsened due to a decline in profits and operating cash flows in the first half of FY23,” said Dhananjay Sinha, director and chief strategist at Systematix Institutional Equity.

He expects the trend to persist in the second half of FY23, which could have a significant impact on the companies’ growth trajectory.

“Poor finances may force many companies to put brakes on their growth plans and scale back operations. This could result in net sales growth decelerating to around 8 per cent in H2FY23 from nearly 30 per cent-plus in H1FY23,” added Sinha.

Other experts attribute the rise in corporate indebtedness to higher working capital, which they said will self-correct in the forthcoming quarters. “Companies have been forced to sit on higher inventory in recent quarters due to volatility in commodity prices and disruptions in global supply chains, leading to higher working capital borrowings. In their management commentary for Q2FY23, most manufacturing companies projected a decline in inventory and working capital requirements in H2FY23 due to a fall in commodity prices and improvement in supply chain," says Shailendra Kumar, chief investment officer (CIO), Narnolia Securities.

The net current assets, or the total working capital for the companies, in the Business Standard sample were up 27.5 per cent YoY in H1FY23, while their combined inventory of finished products and raw materials was up 28 per cent. In comparison, the combined fixed assets were up 12.5 per cent YoY in this period.

On the brighter side, incremental borrowings by corporations translated into higher demand for bank credit and boosted banks’ earnings in H1FY23.

“The credit outstanding of the industry segment registered a robust growth of 12.6 per cent YoY in September 2022 from 1.7 per cent growth in the year-ago period. It was due to robust growth in MSMEs, which were driven by inflation-induced working capital requirements, ease of doing business supported by increasing digitisation in the banking system for faster loan turnarounds, and demand for new capex,” analysts at CARE Rating noted in their recent report on corporate credit.

A faster growth in corporate credit and a rise in interest rates have, however, resulted in a surge in companies’ interest expenses, which grew by 12.5 per cent in H1FY23, the fastest in two-and-a-half years.