Unchanged Optimism Among Indian Companies During February 2019 : IHS Markit
Data collected February 12-26
February data show that Indian companies remain upbeat towards the 12-month outlook for business activity. However, sentiment is unchanged from October’s recent low and remains weaker than seen on average across emerging markets. Levels of confidence are broadly similar across the manufacturing and service sectors, but the former signals a brighter mood than recorded in the prior survey period. Optimism has weakened slightly among service providers.
A net balance of +18% of private sector companies in India predict growth of business activity in the year ahead, the same proportion as last October. This compares with an average of +23% in emerging markets and +24% globally. Growth projections stem from stable market conditions, strong demand, expansion plans, advertising efforts, technological progress, wider product offerings and hopes of easier access to finance. Still, anecdotal evidence highlights competitive pressures, rupee weakness, fluctuations in fuel prices and the upcoming elections as threats to the outlook.
Indian businesses are planning to curb their outlays on hiring and capital spending (capex), with levels of positive sentiment the lowest since June and February 2018 respectively. At the same time, the mood for research & development (R&D) expenditure is neutral. Expectations regarding non-staff costs have been revised lower, as have those for selling prices.
Employment & Investment plans Companies intend to create more jobs in the year ahead, in line with predictions of sales growth. Still,hiring intentions are subdued, as has been the case throughout the past four years. The proportion of firms projecting employment growth outnumbers those forecasting job shedding by +8%, one of the lowest figures globally. Fainter expectations are only noted in China and Italy. Hiring plans are stronger among service provides than at goods producers.
Muted sentiment regarding R&D is evident at the composite level in February, with optimism among services companies offsetting sustained pessimism at manufacturers.
At +9% in February, the net balance for capex points to the lowest level of private sector confidence in one year. For this metric, Indian companies are the least upbeat of the four emerging markets monitored by the Global Business Outlook survey.
Non-staff cost expectations are relative subdued, with the net balance of firms predicting increases the lowest since comparable data became available in October 2009. Some companies foresee higher raw material and fuel prices, but the vast majority expect no change in overall cost burdens. As for staff costs, a net balance of +17% of businesses envisage increases in the coming 12-month period. This is the second-lowest figure globally, ahead only of the US. Broken down by sector, salary inflation looks set to be stronger in services. Forecasts of subdued cost pressures in turn have led to downward revisions to selling price inflation.
Predictions of sales growth and plans to share the burden of expected cost increases with clients conveys upbeat profit projections. Sentiment surrounding earnings is the strongest since October 2016. Optimism on this front outstrips the global average.