MNI India Business Sentiment - Report January 2014

MNI India Business Report January 2014

Insight and data for better decisions

MNI India Business Report - January 20142

About MNI Indicators Insight and data for better decisions

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Written and researched byPhilip Uglow, Chief EconomistShaily Mittal, Economist

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MNI India Business Report - January 2014 3

MNI India Business Report - January 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

29 Effect of Rupee Exchange Rate

30 Supplier Delivery Times

31 Availability of Credit

32 What the Panel Said

34 Data Tables

38 Methodology

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Mr Raghuram, like Fed Governor Ben Bernanke or Bank of England Governor Mark Carney, is seen as a new breed of rock-star central banker. Any self-respecting central banker these days needs an inflation target – something that India has not had.

Aiming for a target


When the Reserve Bank of India Governor Raghuram Rajan took up office in September last year, he immediately commissioned his Deputy Governor to report within three months on what needs to be done to strengthen the monetary policy framework. Mr Raghuram, like Fed Governor Ben Bernanke or Bank of England Governor Mark Carney is seen as a new breed of rock-star central banker. And any self-respecting central banker these days needs an inflation target – something that India to date has not explicitly had.

The report’s findings were published in January and recommend a number of changes to the current rather archaic set-up, most importantly the adoption of an explicit inflation target and the creation of a monetary policy committee which would vote on policy moves, in contrast to the current set-up where the governor himself decides.

The actual recommendations, which seem likely to be introduced at some point, suggest that the central bank should target consumer price inflation at 4% within a range of 2% above or below at all times. Given that inflation on this measure is currently close to 10%, the report recommends that a rate of 8% should be aimed for in 12 months and 6% in 24 months, before the 4% target is finally adopted.

Inflation targeting is popular, but not without its critics. One key issue the central bank would face should it move to the new targeting framework is just how to ensure CPI inflation falls towards the target amid a backdrop of weak growth. Not wanting to miss their new target could mean the new Monetary Policy Committee could err on the side of caution, and keep monetary policy relatively tight.

India will face other problems should it adopt an inflation targeting regime. First, the economy is vulnerable to supply shocks especially from food and oil. Food price inflation leapt to 19% over the summer of 2013, with a well publicised rise in onion price inflation to 336%! Supply shocks can both reduce growth and raise inflation and tightening policy in response can make things worse and lead to increased

variability in output. Unlike a developed country which might target core inflation, food makes up around 50% of the CPI basket in India making it difficult to ignore. In the case of India, to make inflation targeting more effective, government efforts to increase food security would help.

A second issue faced by India is the monetary transmission mechanism and whether the central bank has the necessary tool in the form of short term interest rates to ensure the target is met. As noted in the report itself, India requires various financial sector reforms and deregulation to improve the transmission mechanism.

Inflation has been a large problem for India and something which has an adversely large impact on poorer households. Anchoring inflation at a target rate could bring long-term rewards for the country, although the central bank should be careful not to constrain output too much on the journey to 4%.

Philip UglowChief EconomistMNI Indicators

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The MNI India Business Indicator increased to 63.4 in January from 57.8 in December. Business conditions improved considerably among manufacturing companies, while they improved by less for service and construction sector companies.

Executive Summary


The MNI India Business Indicator increased to 63.4 in January from 57.8 in December, pushing sentiment 4.6% above the level seen a year earlier.

Business conditions improved considerably among manufacturing companies, while they improved by less for both service and construction sector companies.

Future expectations have increased significantly since April, although the improvement has eased in recent months. Expectations for business conditions in three months’ time increased to 72.0 in January from 71.1 in December, pushing the three-month average up to 70.9.

Twelve out of the 15 current conditions indicators included in the report increased in January. Input Prices, Interest Rates Paid and Order Backlogs declined, with the latter hitting a series low. For Business Expectations in the next three months, 11 indicators rose compared with the previous month.

Production made a broad-based pick-up in January, following a decline in December, to stand 8.4% above the level seen in January 2013.

The New Orders Indicator increased 5.5% on the month to 63.6 in January from 60.3 in December, boosted by increased orders at manufacturing and construction companies.

Order Backlogs continued their long-term downward decline in January, falling to their lowest level since the series started in April 2013. The indicator fell from 41.7 in December to 35.6 in January, a drop of 14.6% on the month and pushing backlogs further into contraction.

The Employment Indicator increased for the second consecutive month in January to 51.8 from 50.0 in December, having fallen into contraction in November for the first time last year.

The Input Price indicator eased for the second consecutive month, declining 2.8% from 71.8 in December to 69.8 in January. In spite of the latest decline it remains at an elevated level. Most companies surveyed still complained that high inflation was a serious problem and that rising input prices were adding to their costs.

The cost of credit faced by companies eased further in January, with the Interest Rates Paid Indicator declining to 60.5 from 69.2 in December, the lowest since October.

The Effect of the Rupee Exchange Rate Indicator increased to 44.3 in January from 39.4 in December, a rise of 12.4% on the month. More companies reported that the exchange rate was helping their business, although the majority said it did not affect them.

The Financial Position Indicator rose to 68.2 in January, back close to the level seen in November, following a decline to 65.2 in December.

Both service and construction sector companies reported better financial conditions at the start of the year compared with the end of last year.


Overview

Nov -13 Dec -13 Jan-14Highest

Since Lowest

Since3-Month Average

Monthly Change

Monthly % Change

MNI India Business Indicator

Current Conditions 64.6 57.8 63.4 Nov-13 - 61.9 5.6 9.7%

Future Expectations 69.5 71.1 72.0 Sep-13 - 70.9 0.9 1.3%

Production



New Orders

Current Conditions 62.9 60.3 63.6 Sep-13 - 62.3 3.3 5.5%

Future Expectations 68.5 65.4 65.5 Nov-13 - 66.5 0.1 0.2%

Export Orders


Future Expectations 60.8 67.9 62.9 - Nov-13 63.9 -5.0 -7.4%

Productive Capacity



Order Backlogs

Current Conditions 45.3 41.7 35.6 - series low 40.9 -6.1 -14.6%

Future Expectations 48.8 43.7 35.2 - Jun-13 42.6 -8.5 -19.5%

Employment



Inventories

Current Conditions 50.0 53.1 62.1 series high - 55.1 9.0 16.9%

Future Expectations 53.3 54.6 59.5 series high - 55.8 4.9 9.0%

Input Prices

Current Conditions 73.0 71.8 69.8 - Oct-13 71.5 -2.0 -2.8%


Prices Received



Financial Position



Interest Rates Paid

Current Conditions 73.2 69.2 60.5 - Oct-13 67.6 -8.7 -12.6%


Effect of Rupee Exchange Rate

Current Conditions 43.4 39.4 44.3 Jul-13 - 42.4 4.9 12.4%

Future Expectations 43.5 43.2 43.6 Aug-13 - 43.4 0.4 0.9%

Supplier Delivery Times


Future Expectations 55.0 54.2 51.7 - Aug-13 53.6 -2.5 -4.6%

Availability of Credit


Future Expectations 59.2 58.8 54.1 - Jun-13 57.4 -4.7 -8.0%

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India’s inflation rate fell to 6.2% in December from a 14-month high of 7.5% in November.

Onion prices were up 39.6% in December but this was well down from the 190% increase seen in November.

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Latest official economic data has done little to lift the current feeling of economic gloom.

Economic Landscape


Latest official economic data has done little to lift the current feeling of economic gloom. Following a 4.8% rise in GDP in the July-September quarter, latest data on industrial production for November showed output was still below levels a year earlier. Manufacturing output fared even worse contracting 3.5% on the year. Export growth slowed causing a rise in the trade deficit while the budget deficit remains high.

One ray of light came from the inflation data which showed wholesale price inflation falling for the first time since May which should allow the Reserve Bank of India to halt its monetary tightening. Analysts expect that policy will remain unchanged at the upcoming policy meeting at the end of January, although news that the RBI could possibly target consumer price inflation caused a sharp fall in bond markets.

GDP expands 4.8% in the quarter ending September Economic growth increased by 4.8% on the year in the three months to September, up from 4.4% in the previous quarter, although below the 5.2% seen in the same period a year ago.

The acceleration in growth may have been partly due to a good monsoon which helped boost agricultural output, while manufacturing activity remained anaemic. Agricultural output rose 4.6% on the year, compared with 2.7% in the previous quarter. Manufacturing posted a 1% increase, up from the 1.2% fall seen in the previous quarter, although only 0.1% above the same period a year earlier.

On an expenditure basis, higher exports and a surge in investment were the main drivers of growth, expanding by 16.3% and 2.6% respectively on the year, having both fallen by 1.2% in the three months to June.

Private consumption, the largest component of GDP, rose 2.2% in the three months to September compared with a year earlier, up from 1.6% in the three months to June, but down from 3.5% in the same quarter last year. The Reserve Bank of India lowered its growth forecast for the 2013-14 fiscal year to 5% from 5.7% in October 2013. It expects economic growth to improve

in the second half of this financial year on the back of expansion in the agriculture sector, improved exports and investment due to clearance of stalled projects. The economy has to expand 5.4% in the second half to achieve 5% growth in the full year, an ambitious target given weak industrial growth and uncomfortably high inflation.

Economic Growth

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GDP y/y %

Source: Central Statistical Organisation, India

Industrial output declines furtherIndustrial production contracted for the second consecutive month, falling 2.1% on the year in November, driven by a sharp decline in manufacturing output.

Manufacturing output was down 3.5% in November compared with a year earlier, down from the decline of 1.8% seen in October. Overall, ten out of the 22 industry groups within the manufacturing sector contracted in November, led by a 42.2% fall in Radio, TV and communication equipment & apparatus, followed by a 27.5% fall in Office, accounting & computing machinery.

Output of consumer durables, a measure of consumer demand, posted the twelfth consecutive decline, falling 21.5% in November compared with a fall of 12.1% in October.


Some relief from high pricesIndia’s rate of inflation, measured by the Wholesale Price Index, fell to 6.2% in December from a 14-month high of 7.5% in November, the first monthly decline since May.

Food price inflation eased to 13.7% after accelerating to 19.9% in November. Onion prices were still up 39.6% in December, but this was well down from the 190% increase seen in November. Fuel prices remained broadly stable and rose by 11% on the year.

Consumer price inflation also eased in December to a three-month low of 9.9% compared with 11.2% in November. Food price inflation, which has a weight of 45.7% in the index, eased to 12.2% from 14.7% in November. The moderation was driven by a cooling of vegetable prices that rose by 38.8% compared with a year earlier, down from 61.6% in November.

Capital goods output, a proxy for investment in the economy, grew slightly by 0.3% in November, down from a 2.4% growth in October.

Following a 3.5% contraction on the year in October, mining output grew 1% in November, helping to boost the wider measure of industrial production.

Consumer Price Inflation

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

11.5%

12.0%

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Source: MOSPI

Wholesale Price Inflation

3%

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Source: Office of the Economic Advisor, India

Eyes on next monetary policy decisionThe Reserve Bank of India kept the policy rate unchanged at 7.75% at its December meeting, citing high uncertainty about the short-term path of inflation, the weakness of the economy and the lagged impact of monetary policy on the economy.

The bank said that there were indications that vegetable prices may be decreasing. However, the

Industrial Production

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Industrial Production



bank warned that it would hike interest rates if inflation does not fall in line with the expected trend.

The next monetary policy meeting is on January 28 and analysts expect rates to be left on hold given that inflation remains at a high level. Even though wholesale price inflation dropped slightly, core consumer price inflation (food and fuel prices excluded) in December was as high as 8%.

Budget Deficit RisesThe government budget deficit stood at Rs.5.1 trillion ($82 billion) in the April-November period, about 94% of the target for the year ending March 2014. Total revenue from taxes fell 52% short of target in the same period. The gap in the public finances has put the nation’s debt rating at risk, with most credit rating agencies keeping India on a special watch with a high probability of a downgrade.

Finance Minister P. Chidambaram has pledged to cut the budget gap to a six-year low of 4.8% of GDP this fiscal year, from 4.9% in the previous 12 months. The banks, in which the government holds at least 55%, are paying dividends after the government announced a Rs.14,000 crore infusion to boost capital so as to meet the budget deficit goal.

Rise in foreign reserves Foreign exchange reserves rose to $293.3 billion in the week ending January 10. According to the RBI’s weekly statistical supplement, foreign currency assets, the biggest component of forex reserves, grew by $190.3 million to $267.1 billion.

Forex reserves surged 7% in the October-December quarter to $295.7 billion, the biggest quarterly increase since January-March 2008. Moves by the RBI have greatly strengthened India’s foreign exchange reserve position, leaving it less vulnerable to another run on the currency. The value of India’s gold reserves remained at $19.7 billion.

Trade deficit widens India’s trade deficit widened to $10.1 billion in December as export growth slowed, compared with a shortfall of $9.2 billion in November. The trade gap, though, is much improved from the $18 billion deficit posted in December 2012.

Exports rose for the sixth straight month, but at a slower pace, up 3.5% from a year earlier to $26.4 billion, down from the 5.9% pace witnessed in November. Imports fell 15.3% to $36.5 billion. Oil imports rose to $13.8 billion, higher than the $12.9 billion seen a month earlier and 1.1% above last year. Gold imports were down almost 70% on the year this December to $1.8 billion.

The government attributed slow export growth to the drop in petroleum exports led by an unplanned maintenance shutdown at Reliance Industries in December, one of the country’s largest exporters.

RBI Governor Raghuram Rajan expects India’s current account deficit to narrow to less than 3% of GDP in the year through March 2014, from a record high of 4.8% in the previous year.

Car sales declineThe car Industry faced an annual decline in sales for the first time in 11 years in 2013, with passenger car sales down 10%, following a rise of 3% in 2012.

Passenger car sales declined for the third consecutive month in December, to 132,561 units, 4.5% down from the same period a year earlier. Sales of commercial vehicles fell 28% in December compared with the same period a year earlier.

High inflation, rising fuel prices and interest rates have resulted in a higher cost of ownership, which has impacted the demand for cars.

Spitzzeile Titel14

The MNI India Business Indicator increased to 63.4 in January from 57.8 in December, pushing sentiment 4.6% above the same month a year earlier. Twelve out of the 15 current conditions indicators increased in January.

Indicators


The MNI India Business Indicator increased to 63.4 in January from 57.8 in December, pushing sentiment 4.6% above the level seen a year earlier.

Business conditions improved considerably among manufacturing companies, while they improved by less for both service and construction sector companies.

Confidence tumbled in the first half of 2013 as India faced a potential financial and economic meltdown following fears the US Federal Reserve would taper its bond purchasing operations which caused widespread panic in emerging markets. The Business Indicator has trended higher since the summer of 2013 as financial conditions began to stabilise.

Future expectations have also increased significantly since April, although the improvement has eased in recent months. Expectations for business conditions in three months’ time increased to 72.0 in January from 71.1 in December, pushing the three month average up to 70.9.

Manufacturing sector companies were the most optimistic about the future, while construction and service firms’ expectations fell compared with the previous month. All three sectors, though, remained well above the breakeven level.

Twelve out of the 15 current conditions indicators included in the report increased in January. Input Prices, Interest Rates Paid and Order Backlogs declined, with the latter hitting a series low. For Business Expectations in the next three months, 11 indicators rose compared with the previous month.

63.4MNI India Business Indicator Business Confidence Surges


Jan-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14

Current Conditions 60.6 64.0 59.4 59.8 64.6 57.8 63.4

Future Expectations - 75.5 77.1 68.8 69.5 71.1 72.0

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Future Expectations

“Business conditions are better compared with a month ago because of increased new orders.”Consumer Goods company


Production made a broad-based pick-up in January following a decline in December to stand 8.4% above the level seen in January 2013.

The Production Indicator increased to 64.4 in January from 59.7 in December. Production bottomed at 41.0 in April 2013, and since then has risen significantly. The three month trend over the past five months has remained broadly flat at a little above 60.

Latest official data on industrial production showed output fell 2.1% on the year in November. The narrower measure of manufacturing output fell 3.5% compared with a year earlier following a decline of 1.8% in October.

The Production Indicator rose in all three sectors (manufacturing, services and construction) in January, remaining well above the 50 breakeven level.

Companies were optimistic that production would improve further over the next three months. Future expectations for Production ramped up to 71.6 in January, up from 66.2 in December, the highest since September. The construction sector was less optimistic about the future, with the indicator falling slightly.

Production Picks Up in January

Production




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Production

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Industrial Production to Catch Up

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Industrial Production y/y % (RHS)

MNI Production Indicator



The New Orders Indicator increased 5.5% on the month to 63.6 in January from 60.3 in December, boosted by increased orders among manufacturing and construction companies.

New Orders hit a record low in April and subsequently rose to a record high in September, in part due to seasonal factors as output picked up ahead of the festival season. The recent three month trend in New Orders has been reasonably stable over the past six months, with the indicator hovering around 60. It picked up to 62.3 in January from 60.9 in December.

The New Orders Indicator increased for manufacturing and construction companies, back to the levels seen in November last year, following a blip in December. Orders among service sector firms remained broadly stable compared with December. All sectors remained well above the breakeven 50 mark.

Expectations for New Orders in three months remained almost flat after December’s decline. The indicator stood at 65.5 in January compared with 65.4 in December 2013. After peaking in September, the indicator has trended lower.

New Orders Expand at the Start of 2014

New Orders




63.6

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New Orders

Current Conditions

Future Expectations

“Our company expects an increase in new orders in the next quarter. We may also raise the price of our product if raw material prices go up.”Chemicals Manufacturing company


The Export Orders Indicator increased slightly to 61.4 in January from 60.5 in December, the highest level since September and continuing the broad upward trend seen since April.

The Export Orders Indicator rose for service sector companies following a decline in December. There was a fall for construction and manufacturing companies.

The depreciation of Rupee helped to increase the competitiveness of Indian exports in 2013, although rising input costs offset much of this gain for many companies.

Expectations for three months’ time fell sharply to 62.9 in January from 67.9 in December. Service companies’ expectations remained almost flat, though they declined for manufacturing and construction companies, the latter falling into contraction where it was last seen in August.

Export Orders Highest Since September

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Export Orders


Current Conditions - 55.0 63.2 55.6 58.8 60.5 61.4


Export Orders Movement

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MNI Export Orders (RHS)

Exports,FOB, USD B *

*Source: Indian Ministry of Commerce and Industry


After dropping in December close to the breakeven mark, the Productive Capacity Indicator increased to 58.0 in January from 51.3 in December.

The rise in Productive Capacity was driven by an improvement in the service and manufacturing sectors, pushing it back into expansion above the 50 breakeven mark. There were also gains in the construction sector.

Companies’ expectations about capacity in the future increased as well. Expectations for Productive Capacity in three months’ time increased to 64.3 in January from 57.5 in December.

Productive Capacity Picks up after December Fall

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Productive Capacity

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Productive Capacity




“Due to rise in new orders, the company needs to increase its production capacity.” Containers and packaging company

Spitzzeile Titel20

w

Order Backlogs continued their long-term downward decline in January, falling to their lowest level since April.Order Backlogs in the manufacturing sector have been in contraction for the past four months, and in the construction and services sectors for three and two months respectively.


Order Backlogs continued their long-term downward decline in January, falling to their lowest level since the series started in April 2013.

The Order Backlogs Indicator fell from 41.7 in December to 35.6 in January, a drop of 14.6% on the month and pushing backlogs further into contraction. Order Backlogs tend to fall when there is either reduced demand for goods and services or the productive capacity of the company is enough to meet current demand with little delay in production.

The downturn in the economy seen in recent years has increased the output gap leaving it with a greater amount of spare capacity with many companies able to quickly turnaround incoming orders.

Order Backlogs in the manufacturing sector have been in contraction for the past four months, and in the construction and services sectors for three and two months respectively.

The Future Expectations Indicator saw a much larger decline, with the indicator falling 19.5% from 43.7 in December to 35.2 in January.

Order Backlogs Falls to Series Low

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Order Backlogs

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Order Backlogs





The Employment Indicator increased for the second consecutive month in January to 51.8 from 50.0 in December, having fallen into contraction in November for the first time last year.

The rise between December and January was relatively small with the majority of respondents in the survey reporting that the number of employees they had was “just right”.

Construction and service sector companies’ saw the indicator move back into expansion in January, while manufacturing sector companies’ hiring intentions remained broadly stable.

Companies expected that, compared with a month ago, they will have a greater need to take on new employees over the next three months. The Expectations Indicator increased by 2.3% to 53.4 in January, up from 52.2 in the previous month.

Employment Second Consecutive Rise

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Current Conditions

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Employment




“We may raise the number of employees in the coming months.”Technology company


The Inventory level of Finished Goods Indicator accelerated by almost 17% from 53.1 in December to 62.1 in January to mark a new series high.

The Inventory Indicator for manufacturing increased sharply, while that for construction also rose, with the latter remaining in expansion territory for the second consecutive month.

Future Expectations for the next three months increased to 59.5 in January, gaining 4.9 points from December’s 54.6 outturn. Expectations for inventories have risen after bottoming in June, and have remained above the breakeven level since August.

Inventories Record High

62.1

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Current Conditions

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Inventories





The Input Prices indicator eased for the second consecutive month, declining 2.8% from 71.8 in December to 69.8 in January. In spite of the latest decline it remains at an elevated level. Most companies surveyed continued to complain that high inflation was a serious problem and that rising input prices were adding to their costs.

From December to January, the Input Prices Indicator declined significantly for manufacturing companies, as the percentage of companies who reported higher input costs fell compared with the previous month. The Input Price Indicator for services and construction increased, following a decline in December.

The depreciation in the rupee exchange rate seen in 2013 has led to increased costs for a number of imported inputs. Around 30% of India’s energy demand is met by petroleum and around 80% of the crude oil it requires is imported.

Expectations for three months’ time accelerated to 69.9 in January from 66.4 in December, driven by a rise in expectations among construction and service companies. The expectations indicator for manufacturing companies fell to the lowest since August.

Input Prices Small Easing in Price Pressures

69.8

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75

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85

Apr-

13

May

-13

Jun-

13

Jul-1

3

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-13

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-13

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14

Input Prices

Current Conditions

Future Expectations

Input Prices




“We hope that input prices will stabilise in the coming months.”Financial services company


The Prices Received Indicator, which measures how much companies charge for their goods and services, increased to 60.6 in January from 58.0 in December.

Construction and service sectors reported a rise in the Prices Received Indicator, while the manufacturing sector witnessed a fall, pushing the indicator to the lowest since October.

Prices Received have risen sharply over the past year and this trend has been closely matched by the official Wholesale Price Index data. After troughing in the summer of 2013, wholesale price inflation has trended upwards, although dipped slightly in December to 6.2% in hand with the Prices Received Indicator. The latest rise in Prices Received suggests that inflation could remain elevated for the time being.

Firms also expect to see a pick-up over the next three months with the Future Expectations Indicator rising to 60.9 in January from 56.0 in December. Manufacturing and service sector companies expected prices to rise further in the coming months, following a decline last month while the indicator dropped slightly for construction sector companies.

In the last monetary policy meeting in December, Reserve Bank of India Governor Raghuram Rajan kept interest rates unchanged, saying that he expected food prices to ease in the coming months.

Prices ReceivedRises Again

60.6

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65

70

75

80

Nov

-12

Dec

-12

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

Prices Received

Current Conditions

Future Expectations

Prices Received




4%

5%

6%

7%

8%

9%

10%

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40

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60

70

80

Jan-

13

Mar

-13

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-13

Jul-1

3

Sep-

13

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-13

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14

Prices Received and Wholesale Price Inflation

MNI Prices Received

Wholesale Price Inflation y/y % (RHS)*

*Source: Office of the Economic Advisor, India


The Financial Position Indicator rose to 68.2 in January, back close to the level seen in November, following a decline to 65.2 in December.

Both service and construction sector companies reported better financial conditions at the start of the year compared with end of last year.

Expectations for three months’ time remained almost flat but at a high level, with the indicator gaining just 0.2 points from 71.3 in December to 71.5 in January.

Both construction and service sector companies’ expectations about their future financial position were the same as compared with last month. Optimism among manufacturing companies fell slightly on the month, though remained at a high level.

In spite of the economic downturn the BSE benchmark Sensex hit a record high in December and has come close to scaling this in recent days. Latest results from Tata Consultancy Services, a major IT service company in India, showed profits were 50% higher in the quarter ending December compared with a year earlier.

Financial Position Strong Start to the year

68.2

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85

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-12

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-12

Jan-

13

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3

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14

Financial Position

Current Conditions

Future Expectations

Financial Position




“Financial condition of company is good due to rise in sales.”Electrical components manufacturing company


The cost of credit faced by companies eased further in January with the Interest Rates Paid Indicator declining to 60.5 from 69.2 in December, the lowest since October.

More companies reported that they faced the same level of interest rates rather than higher when compared with the previous month. While in December, 41% of companies surveyed reported higher credit costs, in January this fell to just 27.5%. In contrast, the percentage of companies who reported interest rates were the same increased from 56.4% in December to 66% in January.

The latest fall was led by a sharp decline in the Interest Rates Paid Indicator for manufacturing companies. Construction and service sector companies also showed a decline but of a lesser magnitude.

Expectations for Interest Rates paid in three months’ dropped significantly at the end of last year. The Expectations Indicator was up slightly to 57.9 in January from 56.8 in December.

Manufacturing companies reported a significant drop in their expectations for credit costs for the next three months as most companies expect interest rates to remain the same. The indicator for manufacturing fell below the breakeven level, where it was last seen in August. Construction and service sector companies expected interest paid to rise in the coming months.

The Reserve Bank of India has raised its policy rate twice since October 2013 in order to combat stubbornly high inflation. It left rates unchanged at

Interest Rates Paid Second Consecutive Decline

60.5

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75

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-13

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Interest Rates Paid

Current Conditions

Future Expectations

Interest Rates Paid




7.75% in the last policy meet in December.

Spitzzeile Titel28

w

The cost of credit faced by companies eased further.

The Interest Rates Paid Indicator fell to 60.5 in January from 69.2 in December.


The gain in the Effect of the Rupee Exchange Indicator in January more than compensated for the decline in the previous month, although it remained below the breakeven 50 level indicating that the current level of the exchange rate is hurting business.

The Effect of the Rupee Exchange Rate Indicator increased to 44.3 in January from 39.4 in December, a rise of 12.4% on the month. More companies reported that the exchange rate was helping their business, although the majority said it did not affect them.

The depreciation in the rupee over the summer of 2013 hit companies hard by immediately pushing up the costs of their inputs – in particular energy costs due to higher crude oil prices.

The trend of the Effect of the Rupee Exchange Indicator has closely matched the path of the exchange rate. The indicator plunged into contraction in July and has subsequently recovered in line with the rupee.

Expectations for three months’ time remained broadly stable compared with December. The Future Expectations Indicator stood at 43.6 in January compared with 43.2 in December.

Effect of Rupee Exchange Rate More Companies say Exchange Rate is Beneficial

44.3

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90

Nov

-12

Dec

-12

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


Current Conditions

Future Expectations

0.014

0.015

0.016

0.017

0.018

0.019

0

10

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30

40

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60

70

80

90

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep-

13

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-13

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14

Exchange Rate

MNI Effect of Rupee Exchange Rate

US Dollar versus Indian Rupee






Supplier Delivery Times were broadly stable in January, remaining a little above the three month average of 53.8. The indicator increased slightly from 54.2 in December to 54.4 in January.

Companies expected to see a shortening in supplier delivery times over the next three months, with the indicator falling to 51.7 in January from 54.2 in December, the lowest since August. The decline was led by manufacturing and service sector companies, with the latter falling to the breakeven level of 50.

Manufacturing companies expected supplier delivery times to shorten to the lowest since November, while construction companies expected longer delivery times in the next three months.

Supplier Delivery Times Remains Broadly Stable

54.4

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65

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14


Current Conditions

Future Expectations






Firms’ access to credit improved to a four month high in January, although companies don’t expect the better conditions to continue over the coming months.

The indicator measuring the Availability of Credit has trended upwards since April and reached a series high in September.

The Availability of Credit Indicator increased to 56.8 in January from 52.6 in December. Both manufacturing and service sector firms showed an improvement in credit availability, while construction companies reported that credit conditions worsened in January to the lowest since July 2013.

Expectations for three months’ time fell by 8% to 54.1 in January compared with 58.8 at the end of last year. Construction companies reported a large fall in their expectations, while service and manufacturing sector companies posted smaller declines.

Availability of Credit Access to Credit Improves

56.8

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3

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Current Conditions

Future Expectations





RBI Domestic Credit

0%

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100%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep-

12

Nov

-12

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13

Mar

-13

May

-13

Jul-1

3

Sep-

13

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-13

RBI Domestic Credit y/y % (RHS)

RBI Domestic Credit (INR B)

Source: Reserve Bank of India

Spitzzeile Titel32

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

What the Panel Said

“Due to rise in new orders, the company needs to increase its production capacity.” Containers and packaging company

“Our company has increased the prices of its products because costs of raw material have been increased by our suppliers.” Industrial Machinery company

“Market is too competitive for us to change prices of our products.” Financial Services company

“Our company expects an increase in new orders in the next quarter. We may also raise the price of our product if raw material prices go up.” Chemicals Manufacturing company

“Business conditions are better compared with a month ago because of increased new orders.” Consumer Goods company

“Business conditions are good because of holiday and tourist season.” Entertainment Services company

“The prices charged for final products have increased a little bit.” Marina Transportation company

“US and European market is improving, so we expect good business conditions in the next quarter.” Consumer Services company

“We may raise the number of employees in coming months.” Technology company

“Prices of raw materials have increased so our company has increased the price of the end product.” Industrial Machinery company

“We hope that input prices will stabilise in the coming months.” Financial services company

“The weak rupee exchange rate helps a lot due to NRI customers and investors.” Financial services company

“There is 7.5% hike in salaries of employees due to inflation.” Financial services company

“We will be increasing 10% of employees in next three months.” Software company

“Rupee exchange rate is definitely hurting us because we are net importers.” Automobile manufacturing company

“Availability of credit fund is in surplus, but no one is ready to use due to uncertain business conditions.” Consumer Services company

“1-2% price of our services have been raised as compared with last month, it shall remain the same until the quarter end.” Real Estate Holding & Development company

“We expect good business conditions in next three months.” Telecommunications company

“Order backlog is at lower level.” Investment Services company

“We manufacture winter wear so business condition in coming months will be good.” Clothing company

“There is no demand within the domestic market, so business condition is not good.” Forestry company

“This is a peak season so business condition is better compared with last month.” Hotels company

“Financial condition of company is good due to rise in sales.” Electrical components manufacturing company


Spitzzeile Titel34

35 Historical Summary

36 Historical Records

37 Historical Records - Quarterly

Data Tables


Historical Summary

2013 2014

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


Current Conditions 60.6 53.6 56.1 47.5 50.5 60.6 51.8 64.0 59.4 59.8 64.6 57.8 63.4

Future Expectations 53.8 55.4 49.7 52.0 60.6 67.6 75.5 77.1 68.8 69.5 71.1 72.0

Production



New Orders



Export Orders

Current Conditions 53.7 49.5 41.3 43.7 52.9 57.7 55.0 63.2 55.6 58.8 60.5 61.4


Productive Capacity



Order Backlogs

Current Conditions 57.8 59.3 48.5 49.4 47.0 52.9 42.9 45.3 41.7 35.6

Future Expectations 59.6 32.8 43.6 39.4 57.5 43.4 48.8 43.7 35.2

Employment



Inventories



Input Prices



Prices Received



Financial Position



Interest Rates Paid

Current Conditions 69.2 65.5 52.9 52.8 67.2 68.6 64.8 68.4 60.3 73.2 69.2 60.5

Future Expectations 63.7 52.9 50.0 71.7 65.9 70.2 65.2 65.9 69.6 56.8 57.9




Supplier Delivery Time







Historical Records

2012-2013

Minimum Maximum Mean Median


Current Conditions 47.5 64.6 58.0 59.4

Future Expectations 49.7 77.1 64.4 68.2

Production 82.3 144.1 120.5 123.6



New Orders 80.1 147.6 118.5 124.2



Export Orders 86.5 138.7 114.9 117.0



Productive Capacity 81.7 134.3 114.0 116.3



Order Backlogs 68.4 118.9 92.9 91.4



Employment 98.4 107.7 103.9 104.0



Inventories 78.8 121.6 102.8 105.3



Input Prices 125.4 154.5 140.4 140.7



Prices Received 86.6 140.8 112.4 112.6



Financial Position 105.0 155.6 128.3 131.8



Interest Rates Paid 102.8 144.9 127.1 131.6



Effect of Rupee Exchange Rate 61.0 153.3 102.5 94.4



Supplier Delivery Time 91.4 118.6 107.0 107.9



Availability of Credit 82.0 127.2 107.8 109.9




Historical Records - Quarterly

Q2 13 Q3 13 Q4 13 Quarterly Change Quarterly % Change


Current Conditions 52.9 58.4 60.7 2.3 3.9%

Future Expectations 54.1 73.4 69.8 -3.6 -4.9%

Production

Current Conditions 47.1 61.4 60.8 -0.6 -1.0%


New Orders



Export Orders



Productive Capacity



Order Backlogs


Future Expectations - 46.8 45.3 -1.5 -3.2%

Employment



Inventories


Future Expectations - 47.4 52.9 5.5 11.6%

Input Prices



Prices Received



Financial Position



Interest Rates Paid

Current Conditions 57.6 67.3 67.6 0.3 0.4%





Supplier Delivery Time


Future Expectations - 52.2 54.6 2.4 4.6%





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. Around 200 companies are surveyed each month.

Insight and data for better decisions

Discovering trends in BRIC countries: MNI BRIC indicatorsMNI‘s new BRIC indicators explore attitudes, perspectives and confidence in Brazil, 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

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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:	27-May-2015
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MNI India Business Sentiment - Report January 2014

Economy & Finance