Quarterly Manufacturing Outlook Sees Marked Improvement- FICCI Survey
FICCI's latest quarterly survey on the Manufacturing sector portrays a positive outlook in Q-2 (July-September 2018-19) on account of higher production vis-a-vis previous quarter Q-1 2018-19.
The output growth during July-September 2018 quarter has increased to 61% from 49% in April-June 2018, as per FICCI's Manufacturing Survey. This is the highest percentage of respondents expecting higher production since Q-2 of 2015-16 where 63% of respondents expected higher production- a twelve quarters high sentiment. The percentage of respondents reporting low production decreased to 9% in Q-2 2018-19 from 13% in Q-1 of 2018-19.
FICCI's Quarterly Manufacturing survey assessed the sentiments of manufacturers for Q-2 (July-September 2018-19) for twelve major sectors namely automotive, capital goods, cement and ceramics, chemicals, fertilizers and pharmaceuticals, electronics & electricals, food products, leather and footwear, medical devices and technologies, metal & metal products, paper products, textiles machinery and textiles. Responses have been drawn from over 300 manufacturing units from both large and SME segments with a combined annual turnover of over 2.8 lakh crore.
High growth is expected in Cement and Ceramics, Capital Goods, Automotive and Medical Devices & Technologies in Q-2 2018-19 whereas moderate growth is expected in Textiles, Textile Machinery, Metal and Metal Products, Electronics & Electricals, Chemicals, Fertilizers and Pharmaceuticals, Food Products and Paper Products.
In terms of order books, 57% of the respondents in July-September 2018 are expecting higher number of orders against 49% in April-June 2018.
Capacity Addition & Utilization
Overall capacity utilization in manufacturing still remains the same. The average capacity utilization for the manufacturing sector is about 77% as reported in the survey which is same as that of previous quarter. The future investment outlook is moderate with 45% respondents reporting plans for capacity additions for the next six months. High raw material prices, high cost of finance, uncertainty of demand, shortage of working capital, excess capacities, availability of land at reasonable prices are some of the major constraints which are affecting expansion plans of the respondents.
In sectors like automotive, cement and ceramics, electronics and electricals, metal and metal products, textiles, and textiles machinery average capacity utilization has either increased or remained almost same in Q-2 of 2018-19 as compared to Q-1 2018-19. In capital goods, chemicals, fertilizers and pharmaceuticals, leather and footwear and paper products, the capacity utilization has fallen in Q-2 2018-19 vis-a-vis Q-1 2018-19.
83% of the respondents maintained either more or same level of inventory, which is more as compared to 69% in the previous quarter. This has been due to low demand and impact of GST on sales.
The outlook for exports is also somewhat positive as half of the participants are expecting a rise in exports for Q-2 2018-19 and 32% are expecting exports to continue on same path as that of same quarter last year. However, rupee depreciation has not led to any significant increase in exports during Q-1 2018-19 as 83% of the respondents reported that the exports were not affected much by rupee depreciation. Thereby, emphasizing that there were other global factors that are stymieing the growth of our exports.
Hiring outlook for the sector remains subdued in near future as 65% of the respondents mentioned that they are not likely to hire additional workforce in next three months. However, this proportion has also declined slightly as compared to the previous quarter during which 69% of the respondents were not in favour of hiring additional workforce.
Average interest rate paid by the manufacturers has remained same vis-a-vis the last quarter standing at 10.2% p.a. but the highest rate continues to be as high as 15%.
Based on expectations in different sectors, it is noted that high growth is expected in Cement and Ceramics, Capital Goods, Automotive and Medical Devices & Technologies in Q-2 2018-19 whereas moderate growth is expected in Textiles, Textile Machinery, Metal and Metal Products, Electronics & Electricals, Chemicals, Fertilizers and Pharmaceuticals, Food Products and Paper Products.
The cost of production as a percentage of sales for manufacturers in the survey has risen for 71% respondents. This is primarily due to increased cost of raw materials, wages, power cost and rupee depreciation.