Indian businesses were less confident about the business environment in August as subdued domestic demand offset the positive impact of lower inflation and interest rates. The MNI India Business Sentiment Indicator, a gauge of current sentiment among BSE-listed companies, fell by 4.6% to 62.3 in August from 65.3 in July.
Confidence has now declined for two consecutive months, wiping out the gains made in June on the back of the rate cut by the Reserve Bank of India and leaving sentiment 8.9% down on the year and 3% below the level seen at the start of 2015.
The decline in business confidence was driven by weaker domestic demand. New Orders were flat on the month and consequently production rose only marginally.
Raw material costs eased for the second consecutive month, bringing some relief to companies which have struggled to raise their own prices due to the competitive environment. Still, the Prices Received Indicator fell into contraction to the lowest since May 2013, as companies were forced to pass on cost savings due to intense competition. This may well explain the fall in the Financial Position Indicator to the lowest since October 2013.
While the MNI India Business Indicator stands significantly above the levels seen in 2013 when India was in the midst of a currency crisis, the downturn in sentiment serves as a note of caution to some of the more optimistic forecasts for India’s growth. The MNI India BSI, Production and New Orders in the June quarter remained almost flat for the second consecutive quarter, and were below the level recorded in the June quarter of 2014, dashing hopes of an improvement in economic growth.
One silver lining in this month’s survey was the pick-up in overseas demand. Improvements in advanced economies combined with the recent weakening in the rupee helped Export Orders to rise 4.9% to 59.7.
Commenting on the latest survey, Chief Economist of MNI Indicators Philip Uglow said, “There are not many positives to take away from the August survey. Overall business confidence declined back close to the lows of 2014 while production was well down from the highs of November. In terms of activity the good news came from the export sector with orders having picked up.”
“Our August survey showed inflationary pressures easing further and in hand with the recent weaker official data this appears to open up space for the RBI to cut interest rates further. The next policy meeting is in September but there is a strong possibility that they will decide to move before then.”
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MNI India Business Sentiment Indicator: India Business Sentiment Suffers Setback In August - Weak Inflationary Pressures Provide Room For Rate Cut
Date 25/08/2015