India Business Sentiment Suffers Setback in August
Weak Inflationary Pressures Provide Room for Rate Cut
MUMBAI, India, Aug. 25, 2015 /PRNewswire/ --
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."
Notes to Editors
Please source all information to MNI Indicators.
MNI India Business Sentiment is a monthly poll of Indian business executives at companies listed on BSE (formerly known as the Bombay Stock Exchange). Companies are a mix of manufacturing, service, construction and agricultural firms.
Respondents are asked their opinion on whether a particular business activity has increased, decreased or remained the same compared with the previous month as well as their expectations for three months ahead, e.g. is Production higher/same/lower compared with a month ago?
Diffusion indicators are then calculated by adding the percentage share of positive responses to half the percentage of those respondents reporting no change. An indicator reading above 50 shows expansion, below 50 indicates contraction and a result of 50 means no change.
Data is collected via telephone interviews. More than 400 companies are surveyed each month. The survey has been in place since November 2012.
About MNI Indicators
MNI Indicators, part of Deutsche Borse Group, offers unique macro-economic data and insight to businesses and the investment community. We produce data and intelligence that is unbiased, pertinent and responsive. Our data moves markets.
For more information, visit our website at www.mni-indicators.com.
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