India Inc, or the government and corporate sector companies, have restructured their operations to create a foundation to likely reward its shareholders, reported the news agency ANI, quoting a Nuvama report on Saturday, October 26.
Due to their current high stock valuations, companies are less inclined to give dividends to investors or buy back shares. On the other hand, companies feel that reinvesting amid weak growth will raise the supply and have its own risks, as per the report.
“For India Inc, restructuring is done, but high valuations lower appeal of rewarding (dividends) and warrant reinvesting. But reinvesting amid weak growth shall raise supply and risk undermining I-CRoIC,” said the Nuvama report, according to the agency.
Reinvesting funds during a time of weak economic growth can mean that companies are adding more supply to the market than they can absorb, according to the report.
The research report said that the oversupply could strain their Internal Cash Return on Invested Capital (I-CRoIC), which is a measure of how effectively a company is using its capital to generate cash, as per the report.
“Investments in new markets could help a little, but curtailing supply until macro re-cycling starts may perhaps be the best strategy,” said the Nuvama report, as per the agency.
To offset the challenge, the report also suggested that the companies should explore new markets, but it might only offer limited help. The better strategy may be to limit the growth in supply until economic conditions become stable, according to the agency report.
The report also focused on the market outlook, the short-term sentiment shows signs of nearing an oversold state, as reflected by the Nifty50 advance-decline ratio and overall market breadth, reported the agency.
The market positioning suggests a potential pause in the market’s downward trend, offering a chance for a short-term bounce. The analysts highlighted that the Nifty index has corrected more than 7 per cent from its recent high, pushing it near to a crucial short-term support zone in the 24,000 to 24,300 range, according to the news report.
“Short-term market sentiment is nearing oversold territory, as indicated by the Nifty50 advance-decline ratio and broader market breadth. This suggests a pause in the decline and opens the possibility of a trading bounce,” said the report quoted the agency.
The upcoming trading sessions will be closely watched for signs of sustained recovery, but the research firm advised to remain vigilant as uncertainties around macroeconomic conditions continue to cloud the outlook, according to the agency report cited by the agency.