MNI India Business Sentiment Report April 2014

MNI India Business Report April 2014

Insight and data for better decisions

MNI India Business Report - April 20142

About MNI Indicators Insight and data for better decisions

MNI Indicators 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.

MNI Indicators specialises in business and consumer focused macro-economic reports that give our customers the ability to make timely and relevant decisions. We strive to provide up-to-date information on business and consumer confidence on the economy.

MNI Indicators publishes data on a monthly basis. Our indicators are based on a unique and proprietary methodology and are designed to present an advance picture of the economic landscape as perceived by businesses and consumers every month.

Our monthly reports explore attitudes, perspectives and confidence across different countries and regions. They deliver in-depth analysis, highlight changing patterns and how these can affect potential developments in business and consumer activities.

MNI Indicators is part of MNI, a leading provider of news and intelligence. MNI is a wholly owned subsidiary of Deutsche Börse Group, one of the largest worldwide exchange organisations.

Written and researched byPhilip Uglow, Chief EconomistShaily Mittal, Economist

Release TimeEmbargoed until 9:45 a.m. New Delhi timeApril 23, 2014

MNI Indicators | Deutsche Börse Group Westferry House11 Westferry CircusLondon E14 4HETel: +44 (0)20 7862 7444Email: [email protected]

www.mni-indicators.com@MNIIndicators

Copyright© 2014 MNI Indicators | Deutsche Börse Group. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved.

MNI India Business Report - April 2014 3

MNI India Business Report - April 2014Contents

4 Editorial

6 Executive Summary

10 Economic Landscape

14 Indicators

15 MNI India Business Indicator

16 Production

17 New Orders

18 Export Orders

19 Productive Capacity

21 Order Backlogs

22 Employment

23 Inventories

24 Input Prices

25 Prices Received

26 Financial Position

27 Interest Rates Paid

28 Effect of Rupee Exchange Rate

29 Supplier Delivery Times

30 Availability of Credit

31 Special Question

32 What the Panel Said

34 Data Tables

38 Methodology

Spitzzeile Titel4

Elections are usually periods of great uncertainty but the continued rise in the Sensex as national elections get underway in India belies this.

Election Fever


Elections are usually periods of great uncertainty but the continued rise in the Sensex as national elections get underway in India belies this.

The Sensex hit a fresh all-time high of 22,740 on April 9, buoyed by international investors who see a post-election India being able to dig itself out of the economic hole it’s in. Recent opinion polls have shown the business friendly opposition BJP, led by Narendra Modi, holding a strong lead. The party has promised to kick-start the economy, improve infrastructure, contain inflation and promote foreign investment.

The danger for equity markets is that they are strongly pricing in a Modi win. Elections are full of surprises and India’s opinion polls have been grossly inaccurate in each of the two previous national elections. In 2004, Congress won even after the polls suggested the BJP would retain power, leading the biggest single-day sell off of stocks in more than four years. In 2009, most opinion polls predicted a close fight, although Congress won with the largest tally in 20 years.

Even if business positive Modi wins, the rally in equity markets has been nothing but spectacular given the current economic malaise, leaving them very open to disappointment.

Our monthly Business and Consumer Sentiment surveys suggest that companies have turned the corner and appear optimistic that a new government will turn the economy around. Indian politicians are expected to spend around $5 billion on campaigning

for elections – so at least this splurge would give India’s staggering economy a temporary boost!

The important question is what will happen next? India’s diverse political landscape makes election results hard to forecast and there are still four weeks until the polls close. Whatever the outcome is, an unclear verdict or a weak government would worsen the situation. A stable government with clear reform objectives is a must for stronger economic growth in the coming years.

Philip UglowChief EconomistMNI Indicators

Spitzzeile Titel6

Business confidence weakened at the start of the new financial year in April, while expectations hit a record high on hopes that a new government will turnaround the economy.

Executive Summary


The MNI India Business Indicator decreased to 61.9 in April from 65.5 in March, a fall of 5.5% on the month. The deceleration was mainly led by service sector companies, offsetting part of the gain seen in the previous month. Business sentiment remained stable for manufacturing and construction companies.

India’s national elections started on April 7 and will conclude after a series of stages on May 12. Both businesses and markets are confident that economic conditions will improve when the new government is in power, with polls pointing to a win by pro-business BJP leader Narendra Modi.

Expectations for business conditions in three months’ time increased significantly to 79.1 in April compared with 70.1 in March. The Future Expectations Indicator increased across all three sectors.

For the April survey, which was taken at the start of the month, we asked our panel of the largest Indian companies how they think their business will perform after the general election. Only just over half of respondents, 51.5%, thought that their business will be better after the general election. A significant portion of companies, 38%, said that they were uncertain about how the elections would impact their businesses. An important concern was the stability of the government and its ability to push through reforms.

Production fell in April to the lowest since December, but was well above the same level a year earlier. April marks the beginning of the new financial year for Indian companies and typically activity slows following a pick-up towards the end of the previous year.

The New Orders Indicator increased for the first time in three months, mainly led by manufacturing and construction sector companies.

The Employment Indicator which asks companies whether they have an adequate number of employees, remained broadly stable in April as the majority of companies continued to say that the number of employees they had was “just right”.

The Prices Received Indicator rose sharply in April to 56.8 from 52.2 in March, the highest level since January.

The Financial Position of companies increased to 68.9 in April from 67.2 in March, well above 53.4 recorded in the same month a year earlier.

Interest Rates Paid declined for the second consecutive month in April to 55.3 from 57.6 in March as fewer companies reported that they paid higher interest rates compared with the previous month.

The Effect of the Rupee Exchange Rate Indicator increased to 46.4 in April from 40.8 in March, the highest level since June last year as the proportion of companies who reported that the current level of the rupee was helping their business doubled compared with the previous month.


Overview

Feb-14 Mar-14 Apr-14Highest

Since Lowest

Since3-Month Average

Monthly Change

Monthly % Change

MNI India Business Indicator

Current Conditions 58.2 65.5 61.9 - Feb-14 61.9 -3.6 -5.5%

Future Expectations 69.5 70.1 79.1 series high - 72.9 9.0 12.8%

Production

Current Conditions 62.0 64.8 62.0 - Dec-13 62.9 -2.8 -4.3%

Future Expectations 69.7 67.7 70.6 Jan-14 - 69.3 2.9 4.3%

New Orders

Current Conditions 62.3 61.5 62.9 Jan-14 - 62.2 1.4 2.3%

Future Expectations 67.2 70.9 76.9 Sep-13 - 71.7 6.0 8.5%

Export Orders


Future Expectations 68.2 70.6 68.8 - Feb-14 69.2 -1.8 -2.5%

Productive Capacity

Current Conditions 56.1 57.4 60.7 Nov-13 - 58.1 3.3 5.7%


Order Backlogs

Current Conditions 39.8 50.0 55.4 May-13 - 48.4 5.4 10.8%


Employment


Future Expectations 57.5 53.3 52.0 - Nov-13 54.3 -1.3 -2.4%

Inventories

Current Conditions 64.9 57.2 60.0 Feb-14 - 60.7 2.8 4.9%

Future Expectations 53.5 58.8 51.3 - Oct-13 54.5 -7.5 -12.8%

Input Prices


Future Expectations 72.0 64.0 58.0 - series low 64.7 -6.0 -9.4%

Prices Received

Current Conditions 56.2 52.2 56.8 Jan-14 - 55.1 4.6 8.8%

Future Expectations 61.2 56.6 59.8 Feb-14 - 59.2 3.2 5.7%

Financial Position



Interest Rates Paid

Current Conditions 67.3 57.6 55.3 - May-13 60.1 -2.3 -4.0%

Future Expectations 60.7 52.8 50.7 - May-13 54.7 -2.1 -4.0%

Effect of Rupee Exchange Rate

Current Conditions 44.2 40.8 46.4 Jun-13 - 43.8 5.6 13.7%

Future Expectations 45.2 45.5 54.4 Jul-13 - 48.4 8.9 19.6%

Supplier Delivery Times

Current Conditions 55.6 53.2 52.9 - Oct-13 53.9 -0.3 -0.6%

Future Expectations 56.2 56.3 56.2 - Jan-14 56.2 -0.1 -0.2%

Availability of Credit

Current Conditions 54.9 59.6 63.1 series high - 59.2 3.5 5.9%


w

Business confidence weakened in April, while expectations hit a record high...

...on hopes that a new government will kick-start the economy after the national elections.

Spitzzeile Titel10

Latest economic data from India have been disappointing and dashed hopes of a quick recovery.

Economic Landscape


Latest economic data from India have been disappointing and dashed hopes of a quick recovery. Industrial production fell in February following a small rise in January. Consumer price inflation ticked up again in March owing to higher food prices and the trade deficit widened to the highest level since October, due to higher gold imports in March.

The Reserve Bank of India kept the policy rate unchanged at 8% at its April meeting, allowing the rate increases undertaken between September 2013 and January 2014 to work their way through the economy. However, there are increased fears that the monsoon will be below normal and put pressure on food prices and restrain further the RBI’s ability to ease policy later this year.

Disappointing economic growth Economic growth in India slowed to 4.7% on the year in the three months to December, down from 4.8% in the previous quarter. It was, though, marginally above the 4.4% rate seen in the same period a year ago.

Data on an output basis showed that growth was boosted by services which grew 7% on the year, compared with 4.2% in the previous quarter. A bountiful harvest was expected to translate into strong

agricultural growth but output here was disappointing as it slowed to 3.6% compared with 4.6% in the previous quarter. Manufacturing fell back into contraction, declining by 1.9% compared with 1% growth in the previous quarter.

The Finance Minister P Chidambaram expects the economy to grow by 4.9% this year and to accelerate to 6% in the next fiscal year. The economy must expand by 5.5% in the January-March quarter to achieve the forecast which on current evidence looks highly unlikely. The RBI has revised down its forecast for 2014 to 4.7% from 4.8% previously owing to weak industrial production and investment. This would be the first time in 26 years that growth will be below 5% for two successive years.

Industrial output slumpsIndustrial production recorded the sharpest decline in nine months in February, falling by 1.9% on the year following a rise of 0.8% in January.

Much of the decline was led by weakness in manufacturing output which contracted by 3.7% on the year following a 0.7% decline in January. Thirteen out of the 22 industry groups within the manufacturing sector contracted in February, led by a 34.1% fall in ‘Radio, TV and communication equipment & apparatus’, followed by 24.6% drop in ‘Electrical machinery & apparatus’ and 21.3% in ‘Wearing apparel; dressing and dyeing of fur’.

After increasing 0.7% on the year in January, mining output grew by 1.4% in February. Output of consumer durables, a measure of consumer demand, posted the fifteenth consecutive decline, falling 9.3% in February compared with an 8.3% decline in the previous month. Capital goods output, a proxy for investment, fell sharply by 17.4% on the year, compared with a decline of 4.1% in January.

Economic Growth

0%

2%

4%

6%

8%

10%

12%

Q1

2009

Q3

2009

Q1

2010

Q3

2010

Q1

2011

Q3

2011

Q1

2012

Q3

2012

Q1

2013

Q3

2014

GDP Y/Y % , fiscal year

Source: Central Statistical Organisation, India


Governor Raghuram Rajan said that the Reserve Bank’s policy stance will be firmly focused on keeping the economy on a disinflationary glide path that is intended to hit 8% inflation by January 2015 and 6% by January 2016. A central bank panel recently proposed to revamp its policymaking structure by setting a long-term consumer price inflation target of 4%, plus or minus 2%. As inflation remains high, it recommended that the goal should be phased in gradually.

Rajan has said that if inflation falls as expected, further policy tightening in the near term is not anticipated.

Inflation ticks upConsumer price inflation rose for the first time in four months to 8.3% compared with a revised 8% rate in February. The rise was driven by an increase in food prices. Food price inflation, which makes up almost half of the basket, increased to 9.1% from 8.6% in the previous month. Softer prices for clothing, footwear, public transport and communication helped to keep core CPI unchanged from the previous month at 7.9%.

Wholesale price inflation rose sharply to 5.7% in March from a nine month low of 4.7% in February, with both food and fuel inflation increasing but also a general rise in the price of manufactured goods.

In the coming months, there are additional risks of less-than-normal monsoon rains due to possible El Niño effects, which could have a negative impact on India’s agricultural output.

Repo rate unchanged at 8%The RBI left the key policy rate unchanged at 8% at its first bi-monthly monetary policy of the financial year on April 1.

Inflation

0%

2%

4%

6%

8%

10%

12%

Apr-

12

Jun-

12

Aug-

12

Oct

-12

Dec

-12

Feb-

13

Apr-

13

Jun-

13

Aug-

13

Oct

-13

Dec

-13

Feb-

14

Wholesale Price Inflation*

Consumer Price Inflation**

Source: *Office of the Economic Advisor, India, **MOSPI

Industrial Production

-10%

-5%

0%

5%

10%

15%

20%

25%

50

100

150

200

250

2007

2008

2009

2010

2011

2012

2013

2014

Industrial Production y/y % (RHS)


Source: Central Statistical Organisation, India

Fiscal budget deficitThe government budget deficit stood at Rs. 5.99 trillion in the April-February period, or 114.3% of the target for the year ending March 2014, compared with 97.4% at the same point a year ago. Net tax receipts totalled Rs. 6.27 trillion in the first eleven months to March, while total expenditure was about Rs. 14 trillion.


The government has proposed to bring down the fiscal deficit to 4.6% of GDP in 2013-14. It plans to defer some subsidy payments to next year, while focusing on speeding up the sale of stakes in state-run firms and minority stakes in some private companies. The government raised over Rs. 610 billion from selling licences for the mobile internet spectrum in February.

The fiscal deficit for 2014-15 is projected at 4.1% of GDP and 3% of GDP in 2016-17.

Foreign reserves rise Foreign exchange reserves rose to $306.7 billion in the week ending April 4, from $303.7 billion a week earlier. This was the sixth consecutive week they have increased as overseas investors poured money into the stock market. According to the RBI’s weekly statistical supplement, foreign currency assets, the biggest component of the forex reserves, rose by $2.4 billion to $278.8 billion. These are expressed in dollar terms and include the effect of appreciation or depreciation of the non-US currencies such as the euro, pound and yen, held in its reserves.

Moves by the RBI over the months have greatly strengthened India’s foreign exchange reserve position, leaving the country less vulnerable to another run on the currency. The value of India’s gold reserves increased to $21.6 billion from $21 billion a week earlier.

Trade deficit widens in MarchIndia’s trade deficit widened to a five month high in March to $10.5 billion, up from $8.1 billion in February.

Exports declined for the second consecutive month on the year to $29.6, 3.2% below the level seen last year, although 15.1% above February’s $25.7 billion. Imports fell 2.1% on the year to $40.1 billion in March and were 18.5% above the $33.8 billion recorded in February. Oil imports climbed from February’s $13.7 billion to $15.8 billion in March, the highest in 24

months. Gold imports rose to $2.7 billion from $1.6 billion in February, suggesting that underlying demand for gold is still firm and would increase if import curbs were lifted. For the fiscal year 2013-14, the trade deficit narrowed to $138.6 billion, down from $189.6 in the previous year aided by a rise in exports and fall in imports.

The current account deficit narrowed to $4.2 billion, or 0.9% of GDP in the October-December quarter, from $31.9 billion a year earlier, on the back of curbs on gold imports and a moderate pick-up in exports. The government expects to keep the current account deficit at $45 billion in the fiscal year that ends in March.

Car sales shrink in 2013Passenger car sales decelerated by 4.7% in the fiscal year that ended on March 31, the second consecutive year of decline. For the year as a whole, car sales totalled 17.9 billion, down from 18.7 billion in the previous year. In March, car sales increased by 6.7% over the previous month but were 5.1% below March 2013’s level. Many consumers in India have chosen to defer purchases of vehicles given the slowdown in the economy, higher loan rates and rising fuel prices.

The automobile industry is optimistic that sales will increase in 2014 as the economy rebounds and interest rates and inflation stabilise. Companies are looking forward to the new government’s budget to see if the excise tax cut from 12% to 8% that was announced in the interim budget in February will be continued.

Many car makers are launching compact cars to attract price sensitive customers and there have been reports that various new car models have generated a lot of interest and are expected to boost sales.

Spitzzeile Titel14

Business confidence weakened in April, although sentiment was well above the same month a year earlier, while expectations hit a record high on hopes that a new government will kick-start the economy after the national elections.

Indicators


The MNI India Business Indicator decreased to 61.9 in April from 65.5 in March, a fall of 5.5% on the month. The deceleration was mainly led by service sector companies, offsetting part of the gain seen in the previous month. Business sentiment remained stable for manufacturing and construction companies.

While the Business Indicator fell in April it was well above the 47.5 level seen in April 2013. Business confidence was hit hard in the first half of 2013 as India faced a potential financial meltdown following fears the US Federal Reserve would taper its bond purchases, which caused widespread panic in all emerging markets. Business sentiment has subsequently recovered and has trended higher since the summer of 2013, indicating that the worst is over for the Indian economy.

India’s national elections started on April 7 and will conclude after a series of stages on May 12. Both businesses and markets are confident that economic conditions will improve when the new government is in power, with polls pointing to a win by pro-business BJP leader Narendra Modi.

Expectations for Business Conditions in three months’ time increased significantly to 79.1 in April compared with 70.1 in March. The Future Expectations Indicator increased across all three sectors.

In April, six out of the 15 current conditions indicators included in the survey declined. For business expectations in the next three months, three indicators rose to series’ highs and nine rose compared with the previous month.

61.9MNI India Business Indicator Business Confidence Weakens


Apr-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14

Current Conditions 47.5 64.6 57.8 63.4 58.2 65.5 61.9

Future Expectations 49.7 69.5 71.1 72.0 69.5 70.1 79.1

40

45

50

55

60

65

70

75

80

85

Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14


Current Conditions

Future Expectations

“The overall business situation in the coming months will depend on the upcoming election‘s results.” Diversified Industrials manufacturing company

“Unless and until there is a change in the RBI’s key policy rates, there will be no change in business conditions.” Investment services company


Production fell in April to the lowest since December, but was well above the same level a year earlier. April marks the beginning of the new financial year for Indian companies and typically activity slows following a pick-up towards the end of the previous year.

The Production Indicator declined to 62.0 in April from 64.8 in the previous month. Production bottomed out in the spring a year ago and has subsequently been on a rising trend, averaging 60.0 over the past 12 months.

Service and construction sector companies reported a decline in the Production Indicator while it remained broadly stable for manufacturing companies.

Latest official data showed that industrial production contracted in February by 1.9% on the year, having shown a small rise in January. Manufacturing, which constitutes over 75% of industrial production, declined 3.7% after remaining flat in January and well below the growth of 2.1% in the same month a year ago.

Expectations for Production over the next three months rose after declining for two months in a row. The Future Expectations Indicator increased to 70.6 from 67.7 in March.

Service sector companies were more optimistic about the future level of production. Fewer construction sector companies expected their production to rise in three months‘ time, while the Expectations Indicator for manufacturing companies remained broadly stable.

Production Slows in April

Production




62.0

30

35

40

45

50

55

60

65

70

75

80


Production

Current Conditions

Future Expectations


-3%

-2%

-1%

0%

1%

2%

3%

4%

30

35

40

45

50

55

60

65

70

Jan-

13

Feb-

13

Mar

-13

Apr-

13

May

-13

Jun-

13

Jul-1

3

Aug-

13

Sep-

13

Oct

-13

Nov

-13

Dec

-13

Jan-

14

Feb-

14

Mar

-14

Apr-

14

Industrial Production y/y % (RHS)*

MNI Production

*Source: Central Statistical Organisation, India


The New Orders Indicator increased for the first time in three months, mainly led by manufacturing and construction sector companies.

The indicator increased to 62.9 in April from 61.5 in March and was well above the level seen in April a year ago, when the economy bottomed out as shown by our survey results.

Expectations for New Orders in three months rose for the fourth consecutive month to 76.9 in April compared with 70.9 in the previous month. The rise in the indicator was across the board, with most companies looking forward to the higher demand of the summer season and an improved business environment after a new government is elected.

New Orders Highest Since January

New Orders




62.9

30

40

50

60

70

80

90


New Orders

Current Conditions

Future Expectations

“Our order book has increased due to our marketing effort as well as world trade exhibition.” Tobacco manufacturing company

“There is uncertainty towards future orders as people are waiting for elections to end and will then make investments in residential and commercial spaces.” Real Estate Holding & Development company


Export Orders have trended upwards since April last year and this month’s fall partially offset the gain seen in March. The Export Orders Indicator declined to 61.7 in April from 67.4 in the previous month.

Fewer manufacturing and service sector companies reported higher export orders, the former being the most optimistic among the three sectors.

The depreciation of the rupee has increased the competitiveness of Indian exports, although rising import costs have offset much of this gain for a lot of companies. Also, the rupee rose as high as 59.72 against the US Dollar in late March and has gained 3.7% so far in April and if this trend continues, it will impact export orders negatively.

Companies’ future expectations about Export Orders declined for the first time in three months. The Expectations Indicator fell from 70.6 in March to 68.8 in April. Manufacturing and construction sector companies were less optimistic about future Export Orders, although the indicator remained broadly stable among service companies.

Export Orders Shrink Significantly

61.7

30

35

40

45

50

55

60

65

70

75

80

Feb-13 May-13 Aug-13 Nov-13 Feb-14

Export Orders

Current Conditions

Future Expectations

Export Orders




Export Orders Movement

20

30

40

50

60

70

20

22

24

26

28

30

32

Feb-

13

Apr-

13

Jun-

13

Aug-

13

Oct

-13

Dec

-13

Feb-

14

Apr-

14

MNI Export Orders (RHS)

Exports,FOB, USD B*

*Source: Indian Ministry of Commerce and Industry


Following a sharp decline at the end of 2013, the Productive Capacity Indicator has recovered and rose to 60.7 in April compared with 57.4 in the previous month.

The Productive Capacity Indicator has been above the 50 breakeven mark since May, and averaged 56.7 in the 12 months to April.

Productive Capacity improved significantly among construction companies, as the indicator rose to the highest level in 10 months. Manufacturing companies witnessed a small decline in Productive Capacity.

Companies’ expectations about Productive Capacity in the next three months improved to a series high, as the Future Expectations Indicator rose by 4.7% to 70.7 in April from 67.5 in March. The Expectations Indicator improved for both construction and manufacturing sector companies.

Productive Capacity Future Expectations Hit Series High

60.7

30

35

40

45

50

55

60

65

70

75


Productive Capacity

Current Conditions

Future Expectations

Productive Capacity




Spitzzeile Titel20

w

More companies reported that the current level of the rupee was helping their business.

The Effect of the Rupee Exchange Rate Indicator increased to 46.4 in April from 40.8 in March, the highest level since June last year.


Order Backlogs had fallen sharply over the past year as the economy slowed considerably, although have picked up since January potentially signalling a bounce back in demand.

The indicator moved above the 50 breakeven level that separates expansion from contraction in April to 55.4, up from 50.0 in March, the highest since May 2013.

Companies expected a rise in Order Backlogs over the next three months in anticipation of higher demand. The Future Expectations Indicator increased to 56.7 from 55.4 in March. More manufacturing companies expected higher backlogs in the coming months while construction companies expected them to contract.

Order Backlogs Rise Markedly

55.4

25

30

35

40

45

50

55

60

65

Apr-13 Jul-13 Oct-13 Jan-14 Apr-14

Order Backlogs

Current Conditions

Future Expectations

Order Backlogs



Future Expectations - 48.8 43.7 35.2 40.1 55.4 56.7

“We anticipate higher order backlogs in the coming months due to higher expected new orders.” Electricity manufacturing company


The Employment Indicator asks companies whether they have an adequate number of employees, and it remained broadly stable in April as the majority of companies continued to say that the number of employees they had was “just right”.

The Employment Indicator remained broadly stable at 51.7 compared with 52.1 in March, although there was a significant rise in those who said their number of employees was “not enough”.

Employment rose among manufacturing sector companies, while it declined for services companies, both remaining above the 50 mark that separates whether they have the right number of employees or not. The Indictaor for construction companies remained stable at 50.

Companies’ expectations about future employment declined for the second month in a row after hitting a record high in February. The Expectations Indicator fell to the lowest level since November 2013 to 52.0 in April compared with 53.3 in the previous month. Hard hit manufacturing companies expected employment levels to contract in the coming three months as a growing proportion of companies expected to have too many employees. The indicator rose for construction companies and fell for service companies, although both were well above the 50 mark, indicating future demand for workers.

Employment Future Expectations Dampen

51.7

40

42

44

46

48

50

52

54

56

58

60


Employment

Current Conditions

Future Expectations

Employment




“We have an adequate number of employees. However, we are short of skilled employees due to high attrition.” Auto parts manufacturing company


The Indicator for the Inventory level of Finished Goods increased by almost 5% to 60.0 from 57.2 in the previous month led mainly by manufacturing companies. Many companies reported that business activity would be slow until the elections ended, leading to a build-up of stocks.

Companies expected their Inventories of Finished Goods to decline in the next three months with the Expectations Indicator falling significantly to 51.3 from 58.8 in March. Between March and April, a significantly lower proportion of manufacturing and construction companies expected inventories to rise as it was generally perceived that inventories would be depleted due to greater demand in the coming months.

Inventories Future Expectations Fall Sharply

60.0

25

30

35

40

45

50

55

60

65

70


Inventories

Current Conditions

Future Expectations

Inventories





The majority of the companies in our panel continued to pay higher or the same input prices in April, although the Input Prices Indicator remained broadly stable compared with the previous month.

The Input Price Indicator stood at 66.1 in April compared with 66.0 in March but significantly below February’s 73.0. The Indicator for manufacturing and construction sector companies decreased, while it rose for service sector companies.

Input Prices remained uncomfortably high throughout 2013 with the indicator rising to 73.5 in the quarter ending September. The first three months of 2014 saw the indicator fall as low as 69.6 and this month’s stability provides relief to companies suffering from the high cost of inputs.

Expectations for three months’ time decelerated to a series low of 58.0 in April, down from 64.0 in the previous month, driven by a fall in expectations across all three sectors.

Input Prices Future Expectations Hit Series Low

66.1

45

50

55

60

65

70

75

80

85


Input Prices

Current Conditions

Future Expectations

Input Prices




“Fuel prices have increased and hence input costs are high.” Electricity manufacturing company

“Excise tax has gone down, so it will help in managing our costs.” Consumer Finance service company


The Prices Received Indicator rose sharply in April to 56.8 from 52.2 in March, the highest level since January.

The increase in the Prices Received Indicator over the past year has been closely matched by the official inflation data. Latest data showed that wholesale price inflation rose to 5.7% in March from 4.7% in February, led by higher food and fuel prices.

Expectations for Prices Received in three months’ time also rose to 59.8 from 56.6 in March. Between March and April, the proportion of service sector companies who expected the prices charged for their goods to rise in the coming months, almost doubled. Manufacturing companies also expected a rise but a growing proportion of construction companies expected them to fall in the coming three months.

Prices ReceivedRises Significantly

56.8

30

35

40

45

50

55

60

65

70

75

80


Prices Received

Current Conditions

Future Expectations

Prices Received




3%

4%

5%

6%

7%

8%

9%

30

40

50

60

70

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep-

13

Nov

-13

Jan-

14

Mar

-14

Prices Received and Wholesale Price Inflation

MNI Prices Received

Wholesale Price Inflation y/y % (RHS)*

*Source: Office of the Economic Advisor, India

“If the rupee becomes weaker, then we will increase the prices we charge as our import costs would increase.” Speciality Chemicals manufacturing company


The Financial Position Indicator increased to 68.9 in April from 67.2 in March, well above 53.4 recorded in the same month a year earlier.

Between March and April, the indicator for construction sector companies rose to the highest level in 10 months as the majority of companies reported an improvement in their financial situation. Service sector companies reported a slight improvement in the indicator, although the majority said it was the same as the previous month. Manufacturing companies, which have been hit hard by the economic slowdown, were less optimistic about their financial position. The BSE benchmark Sensex rose to a record high of 22,740.04 on April 9 helped by positive overseas investors, who bought Indian shares worth 7.03 billion rupees, totalling nearly $4.5 billion so far in 2014. More recently the Sensex, along with other Asian markets, have slipped following weak Chinese data and increased tensions in Ukraine.

Companies, across all three sectors, were more optimistic about their financial position in the coming three months as the Expectations Indicator rose to 79.6 in April from 76.1 in the previous month.

Financial Position Strengthens in April

68.9

45

50

55

60

65

70

75

80

85

90


Financial Position

Current Conditions

Future Expectations

Financial Position




“If interest rates are lowered, our financial position may improve.” Real Estate Holding & Development company

“Our financial position will improve in the next three months as the summer season brings more revenue.” Hotel


The Interest Rates Paid Indicator declined for the second consecutive month in April to 55.3 from 57.6 in March as fewer companies reported that they paid higher interest rates compared with the previous month. The Indicator fell across all sectors, with construction posting the largest decline, falling into contraction for the first time in 10 months.

While in March, 25.8% of the companies surveyed reported higher credit costs, in April this fell to almost 20%. In contrast, the percentage of companies who reported they faced the same interest rates increased from 63.5% in March to 70.8% in April.

The RBI kept the key policy rate unchanged at 8% at its monetary policy meeting on April 1 allowing the rate increases between September 2013 and January 2014 to work their way through the economy. Governor Raghuram Rajan said that the Reserve Bank‘s policy stance will be firmly focused on keeping the economy on a disinflationary glide path.

Expectations for Interest Rates Paid remained high throughout most of last year with the indicator hitting a record high in June, although it has trended down since November. Between March and April, an increasing proportion of companies expected to see lower credit costs in the next three months. The Expectations Indicator declined from 52.8 in March to 50.7 in April, very close to a record low of 50.0 recorded in May 2013.

Interest Rates Paid Lowest Since May 2013

53.3

45

50

55

60

65

70

75

Feb-13 May-13 Aug-13 Nov-13 Feb-14

Interest Rates Paid

Current Conditions

Future Expectations

Interest Rates Paid




Manufacturing companies expected Interest Rates Paid in the next three months to contract while for services companies, the indicator fell to the breakeven level. In contrast, the expectations indicator for construction companies increased significantly above the 50 level.


The Effect of the Rupee Exchange Rate Indicator increased to 46.4 in April from 40.8 in March, the highest level since June last year as the proportion of companies who reported that the current level of the rupee was helping their business doubled compared with the previous month.

Businesses are asked whether the exchange rate is helping or hurting their company and a value above 50 shows more firms reported that it was helping, while a reading below 50 shows the exchange rate was hurting.

The indicator has moved sharply over the past year in line with the movement in the exchange rate. In March 2013, the indicator stood at 69.1, showing businesses were benefitting from the rupee. The indicator fell into contraction in July, before hitting a record low in October and has since partially recovered in line with the recovery in the rupee, although has remained below the 50 mark.

From the start of the month until April 15, the rupee was 3.7% up on the same period a month earlier. Appreciation in the currency helps the majority of the Indian companies due to their dependence on imports of fuel and other raw materials.

Companies expected the rupee to start helping their businesses in the coming three months. The Expectations Indicator increased considerably to 54.4 in April from 45.5 in March. This was the first time the indicator has climbed above the breakeven level since July 2013, before the sharp depreciation in the currency.

Effect of Rupee Exchange Rate Will Help Business In the Future

46.4

20

30

40

50

60

70

80

90



Current Conditions

Future Expectations





0.000

0.002

0.004

0.006

0.008

0.010

0.012

0.014

0.016

0.018

0.020

0

10

20

30

40

50

60

70

80

90

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep-

13

Nov

-13

Jan-

14

Mar

-14

Exchange Rate

MNI Effect of Rupee Exchange Rate

US Dollar versus Indian Rupee (RHS)*

*Source: Reuters


After steadily increasing for four straight months, the Supplier Delivery Times Indicator shortened in March to 53.2 and remained broadly stable in April at 52.9.

Supplier Delivery Times were expected to remain broadly stable over the next three months as well, with the Future Expectations Indicator standing at 56.2 in April compared with 56.3 in March. Manufacturing companies expected supplier delivery times to lengthen while construction companies expected the opposite, with both above the breakeven level.

Supplier Delivery Times Broadly Stable

52.9

30

35

40

45

50

55

60

65



Current Conditions

Future Expectations






The indicator measuring the Availability of Credit accelerated to a series high of 63.1 in April from 59.6 in March.

After falling to a record low in April 2013, the trend for Credit Availability has been positive and the rise on the month puts the indicator over 50% above the same period a year ago.

More service sector companies registered an increase in credit availability and manufacturing companies’ credit availability improved slightly to the highest level in seven months. In contrast, the proportion of construction companies who experienced better credit availability declined compared with the previous month.

Businesses also expected credit availability to improve considerably in the next three months as the Future Expectations Indicator increased to a series high of 67.8 from 59.5 in March. The increase was broad-based across the three sectors.

Availability of Credit Hits a Series High

63.1

30

35

40

45

50

55

60

65

70



Current Conditions

Future Expectations





“Many banks are ready to give us credit because of our company’s track record.” Heavy construction company

“Credit availability is a bit problematic.” Industrial machinery manufacturing company


For the April survey, which was taken at the start of the month, we asked our panel of the largest Indian companies how they think their business will perform after the general election. Indian elections started on April 7 and will take place in a series of stages until May 12.

Only just over half of respondents, 51.5%, thought that their business will be better after the general election. 9.9% of respondents thought that their business performance will remain the same and less than 1% thought it would worsen. A significant portion of companies, 38%, said that they were uncertain about how the elections would impact their business. An important concern was the stability of the government and its ability to push through reforms.

The BJP party is widely seen as benefiting from the rising popularity of its pro-business prime ministerial candidate, Narendra Modi. Latest opinion polls suggest that the BJP and its allies could win the majority of legislative seats in the national elections.

Special Question How do you think your business will perform after the election?

51.5%

9.9%

0.7%

37.9%

How do you think your business will perform after the general election?

“Business conditions will improve only if the new government is stable.” Heavy construction company

“We have the same set of clients and a fixed number of orders. So there will not be any impact due to elections.” Food products manufacturing company

“If BJP party gets elected, business scenario might improve.” Consumer goods manufacturing company

“Due to political stability after change in the government, there may be favourable policies for sugar industries.” Food Products manufacturing company

Better

Worse

Same

Don‘t Know

“Market will be better after a stable election outcome.” Software Services company

“We expect a better performance as probably goods and services tax will come into effect after the new government is formed.” Consumer Electronics manufacturing company

“The new government would take at least 6-8 months to get their policies rolling.” Real Estate Holding & Development company

“If BJP comes to power, there is hope for betterment.” Asset management company

Spitzzeile Titel32

A selection of comments from the panel of businesses surveyed over the past month.

What the Panel Said

“Due to lower demand, we have reduced the prices we charge.” Paper manufacturing company

“Due to higher labour charges, we have increased the prices charged for our goods.” Heavy construction company

“Fuel prices have increased and hence input costs are high.” Electricity manufacturing company

“We expect higher orders May onwards.” Consumer Finance services company

“Cement and steel prices have increased.” Real estate Holding and Development company

“Due to an increment in salary of employees, the input costs to our company are higher.” Software services company

“Unless and until there is a change in the RBI’s key policy rates, there will be no change in business conditions.” Investment services company

“We got six more clients this month.” Investment services company

“New orders have started coming in.” Containers & packaging manufacturing company

“There is uncertainty towards future orders as people are waiting for elections to end and will then make investments in residential and commercial spaces.” Real Estate Holding & development company

“We expect higher demand in the coming months and are sales and marketing team is working towards it.” Hotelier Group

“Our profitability has increased by 10%.” Mortgage Finance company

“We have just the right number of employees.” Pharmaceuticals manufacturing company

“We have an adequate number of employees. However, we are short of skilled employees due to high attrition.” Auto parts manufacturing company

“If rupee becomes weaker, then we will increase the prices we charge as our import costs would increase.” Speciality chemicals manufacturing company

“We anticipate higher order backlogs in the coming months due to higher expected new orders. “ Electricity Manufacturing company

“Our financial position will improve in the next three months as the summer season brings more revenue.” Hotelier

“We hope that the overall business conditions would improve after election. Single party with majority should come to power.” Water manufacturing company

“If interest rates are lowered, our financial position may improve.” Real Estate Holding & Development company

“The overall business situation in the coming months will depend on the upcoming election‘s results.” Diversified Industrials manufacturing company

“Credit availability is a bit problematic.” Industrial Machinery manufacturing company

“We will raise our prices in the coming months due to expected higher demand during summer vacations.” Hotelier

“Summer holidays are good for our business, so the coming months will see increased business activity.” Recreational services company

“Improvement in the US economy is boosting our business.” Investment services company

“The new government would take atleast 6-8 months to get their policies rolling.” Real Estate Holding & Development company

“Many banks are ready to give us credit because of our company’s track record.” Heavy construction company

“Excise tax has gone down, so it will help in managing our costs.” Consumer Finance service company


Spitzzeile Titel34

35 Historical Summary

36 Historical Records

37 Historical Records - Quarterly

Data Tables


Historical Summary

2013 2014

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr


Current Conditions 47.5 50.5 60.6 51.8 64.0 59.4 59.8 64.6 57.8 63.4 58.2 65.5 61.9

Future Expectations 49.7 52.0 60.6 67.6 75.5 77.1 68.8 69.5 71.1 72.0 69.5 70.1 79.1

Production



New Orders



Export Orders



Productive Capacity



Order Backlogs


Future Expectations - 59.6 32.8 43.6 39.4 57.5 43.4 48.8 43.7 35.2 40.1 55.4 56.7

Employment



Inventories



Input Prices



Prices Received



Financial Position



Interest Rates Paid






Supplier Delivery Time







Historical Records

2012 - Current

Minimum Maximum Mean Median


Current Conditions 47.5 65.5 58.7 59.6

Future Expectations 49.7 79.1 66.1 69.5

Production



New Orders



Export Orders



Productive Capacity



Order Backlogs



Employment



Inventories



Input Prices



Prices Received



Financial Position



Interest Rates Paid













Historical Records - Quarterly

Q3 13 Q4 13 Q1 14 Quarterly Change Quarterly % Change


Current Conditions 58.4 60.7 62.4 1.7 2.8%

Future Expectations 73.4 69.8 70.5 0.7 1.0%

Production



New Orders



Export Orders



Productive Capacity



Order Backlogs

Current Conditions 49.8 43.3 41.8 -1.5 -3.5%

Future Expectations 46.8 45.3 43.6 -1.7 -3.8%

Employment



Inventories



Input Prices



Prices Received



Financial Position



Interest Rates Paid













Methodology

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?

A diffusion indicator is 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. Over 200 companies are surveyed each month.

Insight and data for better decisions

Discovering trends in Emerging MarketsMNI‘s Emerging Markets Indicators explore attitudes, perspectives and confidence in Russia, India and China. Our data and monthly reports present an advance picture of the economic landscape as perceived by businesses and consumers.

Our indicators allow investors, economists, analysts, and companies to identify economic trends and make informed investment and business decisions. Our data moves markets.

www.mni-indicators.com

Published byMNI Indicators | Deutsche Börse GroupWestferry House11 Westferry CircusLondon E14 4HEwww.mni-indicators.com

Copyright© 2014 MNI Indicators | Deutsche Börse Group. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved.

Date post:	13-Jul-2015
Category:	Economy & Finance
Upload:	mni-indicators-deutsche-boerse-group
View:	297 times
Download:	3 times

MNI India Business Sentiment Report April 2014

Economy & Finance