Major headwinds While massive cost-cutting cushioned profits, a spike in inflation, crude oil prices and raw material costs could slow this trajectory.
In FY22, operating margins of the sample dropped 140 basis points (bps), while net profit growth slowed from 61% to 52%. Rampant inflation and material shortages have led to build-up of inventory levels, and companies are again taking more time to collect due payments after the FY21 recovery, said Anil Sarin, chief investment officer at Centrum PMS.
Dislocations caused by the Russia-Ukraine war and China’s zero-covid policy have significantly increased days working capital (DWC) in several sectors.
As the global situation improves, “there should be a marked reduction in DWC, leading to better cash flows for businesses across the world", he added.