111098In view of reduced inflation and expenses, will it be right to invest in IT stocks?

With the clearance of piling up stocks uppermost in the minds of marketers, companies have cut production by as much as 50% in June to free up shelf space before the festive season sales blitzkrieg, The Economic Times has reported. The production cuts this month follow a full-steam-ahead production schedule till May that the companies were pursuing in the hope that demand will revive with the lifting of spirits against decelerating inflation rates and overall optimistic macroeconomic scenario.

With lukewarm demand over several months, inventory had been piling up in the stores almost all over the country, something to which brands responded with standard tools such as flash sales and deep discounts. Sluggish demand over six-seven months hit the brands with many sitting on unsold inventory.

The products that have been burdened with record inventory levels span a wide range of items such as electronic goods, mobile phones, apparel, shoes and fashion accessories.

In order to prevent further piling up of inventory, electronics and cellphone brands have cut production and shipment to stores by up to 50% in June.

Electronic consumer goods manufacturers, who were suffering sluggish demand of airconditioners, refrigerators, coolers, during the peak summer months this year due to cooler-than-normal weather, responded with 50% cut in production. Earlier, they had planned production cuts up to 30% only.

“Most companies were running production at peak capacity till last month, hoping demand will pick up, which didn’t happen,” Kamal Nandi, Godrej Appliances business head told the newspaper. He also added that production for the festive season will also start around August-September instead of the usual July-August schedule, since the peak festive season of Diwali is a bit late on November 12 this year.

Jaina Group managing director Pardeep Jain also confirmed that cellphone brands have adjusted production to allow for clearance of unsold stock since sales in mobile phones was at 30% lower. The Jaina Group is a contract manufacturer for a few brands apart from owning its own Karbonn brand of handsets.

Ashish Dikshit, managing director of Aditya Birla Fashion and Retail recently told a group of analysts that they did not go for some planned purchases since offtake was low. Though the lower end of the market was more impacted initially, the refusal to spend spread like contagion in other segments of the pyramid as well.

Jockey, the prominent undergarments brand, suffered record inventory levels of 120 days. It was 92 days last year at the same time, revealed V S Ganesh, managing director of Page Industries that owns the brand. Ganesh also confirmed that they were slowing down the addition of new stocks to allow for clearance of old ones.

Industry veterans attributed piling up of unsold stocks due to the slackening of consumer expenditure considered “inessential” in the face of hardening inflation. However, companies could never predict such a sharp slowdown.

Now the companies are optimistic about higher demand during the festive season compared to that in the festive days last year.