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th85 BusinessOutlook Survey
October- December 2013
www.cii.in
Confederation of Indian Industry
Copyright © 2013 by Confederation of Indian Industry (CII), All rights reserved.
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Published by Confederation of Indian Industry (CII)The Mantosh Sondhi Centre; 23, Institutional Area, Lodi Road, New Delhi-110003 (INDIA)T: +91-11-24629994-7; F: +91-11-24626149; E: info@cii.in; W: www.cii.in
Contents
th85 Business Outlook Survey : Oct. - Dec. 2013
• Highlights 1
• Business Confidence Index 2
• General Economic Prospects 3
• General Business Prospects 5
• Overall Trends 6
• Export and Import Trends 9
• Business Concerns 10
• Coverage & Methodology 10
• Indicating sharp improvement in investors’ sentiments, the CII Business Confidence Index (CII-
BCI) for Oct- Dec 2013 quarter increased sharply to 54.9 from 45.7 in the previous survey.
Breaching the psychological 50-level mark, index reached its highest value since Q2FY13.
• Majority of the respondents (42 per cent) felt that GDP growth in the current fiscal would lie in the
range of 4.5-5.0 per cent. Only 28 per cent of them expected it to fall in the range of 5.0-5.5 per
cent.
• Inflation is expected to cross 7 per cent mark during the current fiscal, according to largest 41
per cent of the respondents.
• The largest 32 per cent of respondents expect fiscal deficit to lie in a range of 4.5-5.0 per cent of
GDP in 2013-14. This would be in line with the government’s target of 4.8 per cent for the year
• 63 per cent of respondents expect current account deficit to lie in a range of 3.5-5.0 per cent of
GDP in 2013-14, which would be above the comfort level of RBI, even though the current
account deficit moderated sharply to 1.2 per cent of GDP in second quarter of the current fiscal.
• 55 per cent of the respondents expect exchange rate to reach Rs 61-63 per US$ by March 2014.
• In a worrying sign of company’s performance, 56 per cent of respondents have been running
their companies at less than 75 per cent capacity utilization in the second quarter of the current
fiscal. However, in a sign of improvement in the situation, much smaller (only 45 per cent) per
cent of respondents expect capacity utilization to fall below 75 per cent in the current quarter.
• Majority of the respondents (53 per cent) have not planned an increase in capacity expansion
during the third quarter of current fiscal.
• The survey reveals that 58 per cent of the respondents expect increase in their sales, new
orders and value of production in the third quarter of 2013-14, which is much larger than only 45
per cent who witnessed increase in their sales in the previous quarter.
• Majority of the respondents expect increase in input cost in most cases. As regards the input
cost in the current quarter as compared to the actual of the previous quarter, there is significant
decline in percentage of respondents who expect expenses on raw materials, electricity, and
wages & salaries to increase.
• As compared to only 31 per cent respondents who witnessed an increase in their pre-tax profit in
second quarter, 43 per cent respondents expect an increase in the pre-tax profit in the third
quarter of current fiscal.
• Majority of respondents (53 per cent) expect their exports to increase in the current quarter.
Only 49 per cent of the respondent had seen increase in their exports during the previous
quarter.
• The largest 56 per cent of the respondents didn’t expect their imports to increase during the
current quarter.
• In the 85th Business Outlook Survey, domestic economic/political instability, slackening
consumer demand, high level of corruption, persistent high inflation and risk from exchange
rate volatility emerged as the top five current concerns in order of severity to most firms.
Highlights
1
th85 Business Outlook Survey : Oct. - Dec. 2013
Business Confidence Index
Indicating sharp improvement in investors’ sentiments, the CII Business Confidence Index (CII-BCI) for Oct- Dec 2013 quarter increased sharply to 54.9 from 45.7 in the previous survey. Breaching the psychological 50-level mark, index reached its highest value since Q2FY13. The pick-up in BCI for the current quarter comes as a silver lining for the economy, which is otherwise devoid of any positive news. However, it should also be approached with a bit of cautious optimism as the downside risks to growth have still not abated from the horizon.
The respondents in the survey were asked to provide a view on the performance of their firm, sector and the economy based on their perceptions for the current and next quarter. The CII-BCI is then constructed as a weighted average of the Current Situations Index (CSI) and the Expectation Index (EI). It is significant to note that both current as well as expectation indices contributed to the sharp increase in BCI. In both indices, respondents rated the situation to improve drastically with respect to all constituents - overall economy, sector, and own activity.
2
th85 Business Outlook Survey : Oct. - Dec. 2013
Index
Business Confidence Index
Current Situation Index
Overall Economy
Own Activity Sector
Own Company
Expectation Index
Overall Economy
Own Activity Sector
Own Company
Q3* FY11
66.2
64.0
65.0
63.2
64.3
67.3
66.0
66.3
68.4
Q4FY11
66.7
62.7
59.9
63.0
63.4
68.7
65.6
68.8
69.7
Q1FY12
62.5
62.6
61.1
61.8
63.7
62.4
61.1
61.1
63.7
Q2FY12
53.6
52.7
49.2
51.8
54.4
54.0
48.5
53.7
56.1
Q3FY12
48.6
47.7
44.5
46.0
50.0
49.1
44.2
47.5
51.7
Q4FY12
52.9
54.7
49.4
46.9
56.3
51.9
48.9
46.9
56.3
Q1FY13
55.0
51.9
48.9
46.9
56.3
56.5
52.8
53.5
59.7
Q2FY13
51.3
47.5
36.3
44.6
53.2
53.2
44.6
49.8
58.4
Q3FY13
49.9
48.6
44.5
45.9
51.7
50.6
47.5
48.1
53.3
Q4FY13
51.3
47.1
44.2
46.3
48.7
53.4
49.1
52.2
55.7
Quarterly Business Confidence Index (BCI)
* The Survey is conducted on a quarterly basis since the 74th Business Outlook Survey
Q2FY14
45.7
46.1
35.1
43.9
51.3
45.4
37.0
43.6
49.5
Q1FY14
51.2
48.7
44.5
46.1
51.7
52.5
49.4
50.6
54.7
Q3FY14
54.9
51.0
41.6
47.7
56.3
56.8
50.1
54.3
60.7
52.9 55.051.3 49.9 51.3 51.2
45.7
54.9
66.2
Q3*
FY11
66.7
Q4
FY11
62.5
Q1
FY12
53.6
Q2
FY12
48.6
Q3
FY12
Q4
FY12
Q1
FY13
Q2
FY13
Q3
FY13
Q4
FY13
Q1
FY14
Q2
FY14
Q3
FY14
Business Confidence Index
General Economic Prospects
Growth & Inflation
GDP expected to decelerate in the range of 4.5-5.0 per cent in 2013-14, while WPI inflation to lie above 7 per cent
GDP growth is expected to decelerate to a range of 4.5-5 per cent in 2013-14 by 42 per cent of the respondents, while only 28 per cent expect it to lie between 5.0-5.5 per cent. Further, most of the respondent firms (41 per cent) expected inflation to lie above 7 per cent for the current fiscal, which is way higher than the comfort level of RBI.
Expected GDP Growth in 2013-14(% of Respondents)
The Twin Deficits - Fiscal & Current Account
53 per cent of respondents expect fiscal deficit to lie in a range of 4.5-5.5 per cent of GDP in 2013-14, while 63 per cent expect current account deficit to lie in a range of 3.5-5.0 per cent of GDP in 2013-14
At a time when subsidies have escalated sharply and the expenses of government have upside risk owing to impending Lok Sabha elections in the country, it is comforting to note that the fiscal deficit in the current year may remain below 5.5 per cent mark, as endorsed by 53 per cent of the respondents. However, the upside risks to fiscal deficit are also high this year given the fact that weak economic growth would translate into sluggish tax revenue and the ambitious disinvestment target would be at risk due to the not-so-favorable market conditions.
3
th85 Business Outlook Survey : Oct. - Dec. 2013
Expected WPI Inflation in 2013-14(% of Respondents)
6.0 - 6.5% 2%
<4.5%16%
4.5 - 5.0% 42%
5.0– 5.5% 28%
5.5 – 6.0% 10%
>6.5%2%
>7.5%41%
7.0 - 7.5%21%
6.5 - 7.0%19%
6.0 - 6.5% 12%
<5.5%1%
5.5 – 6.0% 6%
<3.5%7%
5.0 - 5.5% 17%
>5.5%13%
3.5– 4.0% 21%
4.0 – 4.5%20%4.5 - 5.0%
22%
Even though the current account deficit (CAD) for the second quarter of the current fiscal dipped to 1.2 per cent of GDP, 63 per cent of respondents expect current account deficit to lie in a range of 3.5-5.0 per cent of GDP in 2013-14, much above the comfort zone of RBI. In some respite, only 30 per cent believed that CAD may cross 5 per cent mark.
Expected Current Account Deficit in 2013-14(% of Respondents)
Exchange Rate
Rupee to remain in the range of 61-63 per US$ by March 2014
55 per cent of the respondents expect exchange rate to remain in the range of Rs 61-63 per US$ by March 2014. Given that US has now announced tapering of its monetary stimulus beginning next year, this is a positive news. Only 19 per cent feel that exchange rate my cross Rs 63 per US$ by March 2014.
4
Expected Exchange Rate by March 2014(% of Respondents)
th85 Business Outlook Survey : Oct. - Dec. 2013
Expected Fiscal Deficit in 2013-14(% of Respondents)
<4.5%7%
>6.0%21%
5.5 – 6.0% 19%
5.0– 5.5% 21%
4.5 - 5.0%32%
Rs.62-63 30%
Rs.61-62 25%
Rs.60-61 11%
>Rs.6319%
Rs.59-60 10%
<Rs.59 5%
>100%2%
50-75%
36%
Below 50%20%
75-100%
42%
5
General Business ProspectsCapacity Expansion & Capacity Utilization
As compared to 56 per cent respondent firms reporting below 75 per cent capacity utilization in second quarter, only 45 per cent expect the same for third quarter
56 per cent of respondents have been running their companies at less than 75 per cent capacity utilization in the second quarter of the current fiscal. In a sign of improvement in the situation, much smaller (only 45 per cent) percentage of respondents expect capacity utilization to fall below 75 per cent in the current quarter. Firms, it appears from the survey, are going slow on adding capacity at the moment. Majority of the respondents (53 per cent) have not planned an increase in capacity expansion during the current quarter.
th85 Business Outlook Survey : Oct. - Dec. 2013
Capacity Expansion during July-Sep, 2013(% of Respondents)
Capacity Expansion during Oct-Dec, 2013(% of Respondents)
Change in Spending on Capacity Expansion during Oct-Dec over July-Sep, 2013(% of Respondents)
75-100% 51%
Below 50%13%
50-75%
32%
>100%4%
Decrease15%
No Change53%
Increase32%
6
th85 Business Outlook Survey : Oct. - Dec. 2013
Investment Plans
Majority of respondents expect either no change/decline in their domestic and international investment plans in 3QFY14
According to the survey, majority of the respondents (54 per cent) expect their domestic investments to show either a decline or no change in the Oct-December 2013 quarter. Mirroring this, nearly of half of the respondents (47 per cent) expect their international investments to either decline or show no change in the third quarter of 2013-14.
Investment Plans for Oct-Dec, 2013 - Domestic(% of Respondents)
Investment Plans for Oct-Dec, 2013 – International(% of Respondents)
Not Applicable
5%>20% Increase
6%
0-10% Increase
25%
Decline or no change
54%
10-20% Increase
10%
>20% Increase
4%
Not Applicable
18%
Decline or no change
47%10-20% Increase
11%
0-10% Increase
20%
Overall Trends
Overall Sales & New Orders
A surge in new orders may push sales
The survey reveals that 58 per cent of the respondents expect increase in their sales, new orders and value of production in the third quarter of 2013-14, which is much larger than only 45 per cent who witnessed increase in their sales in the previous quarter. This is indeed a healthy sign for the economy and bodes well for the growth prospects. It is significant to note that the percentage of respondents reporting increase in new orders and value of production has increased significantly between the second and third quarter, while the same for inventories declined.
7
th85 Business Outlook Survey : Oct. - Dec. 2013
Overall Sales & New orders in July-Sep, 2013(% of Respondents)
Overall Sales & New orders in Oct-Dec, 2013(% of Respondents)
Decrease27%
No Change28%
Increase45%
Increase
No Change
Decrease
Increase58%
No Change28%
Decrease14%
Trends in output indicators: Actual (July-Sep) vs. Expected (Oct-Dec), 2013 (% of Respondents)
40
55
39
51
3331
40
31
4037
52
45
20.2
14.1
20.9
12.314.9
24.0
New Orders
(July - Sep)
New Orders
(Oct - Dec)
Value of
Production
(July - Sep)
Value of
Production
(Oct - Dec)
Inventories
(July - Sep)
Inventories
(Oct - Dec)
Increase No Change Decrease
Expenditure
Majority expect increase in input cost in third quarter even though this number has fallen from the last quarter
As regards the input cost in the current quarter as compared to the previous quarter, there is a significant decline in the percentage of respondents who expect expenses on raw materials, electricity, and wages & salaries to increase. However, majority of the respondents expect increase in other input costs during the current quarter.
Increase No Change Decrease
8
th85 Business Outlook Survey : Oct. - Dec. 2013
Input Costs(% of Respondents)
62
55
66
45 47
38
45 45
35 3732
48 51
62
54 55
3.48.2
1.36.5
1.9 0.0 0.7 0.7
Raw MaterialsCost (Actual)
Raw MaterialsCost (Exp)
ElectricityCost (Actual)
Wages &Salaries (Exp)
Cost ofcredit (Actual)
Cost ofcredit (Exp)
Wages &Salaries (Actual)
ElectricityCost (Exp)
Pre-tax Profits
Majority expect an increase in profits
Majority of the respondents (43 per cent) expect an increase in their per-tax profit margin in the third quarter and this marks a sharp increase of 31 per cent in the last quarter. This may be attributed to expectation of a sharp increase in sales and moderation in input costs.
31 32
37
43
32
26
Increase No Change Decrease
Pre-Tax Profits (Actual) Pre-Tax Profits (Expected)
Pre-tax Profits(% of Respondents)
Export and Import Trends
Majority expect an increase in export orders and stagnancy in imports
Majority of respondents (53 per cent) expect their exports to increase in the third quarter of the current fiscal. Only 49 per cent of the respondent had seen increase in their exports during the previous quarter. Exports are likely to find some support amidst economic recovery in both the US and the Euro Zone. Besides, a weaker Rupee is also likely to aid exports.
The largest 56 per cent of the respondents didn’t expect their imports to increase during the current quarter. Only 23 per cent said that they might witness an increase in imports in the third quarter. This is positive news as it is expected to keep the current account deficit in check.
9
th85 Business Outlook Survey : Oct. - Dec. 2013
49
35
15
53
39
8
Increase No Change Decrease
Actual Expected
Export Volume(% of Respondents)
Import Volume(% of Respondents)
18
57
2423
56
21
Increase No Change Decrease
Actual Expected
10
Business Concerns
Domestic economic/political instability, slackening consumer demand, high level of corruption, persistent inflation and risk from exchange rate volatility are the top current business concerns
thIn the 85 Business Outlook Survey, domestic economic/political instability, slackening consumer demand, high level of corruption, persistent high inflation and risk from exchange rate volatility emerged as the top five concerns in order of severity to most firms.
Coverage & Methodology
CII’s 85th Business Outlook Survey is based on sample survey of firms covering all industry sectors, including micro, small, medium and large enterprises from different regions. The survey also enumerated responses across industry groups both in public and private sectors engaged in manufacturing and services sector.
The survey was conducted from October-December 2013, covering 174 firm of varying sizes. Majority of the respondents (63.2 per cent) belonged to large-scale firms, while 12.1 per cent were from medium-scale firms and 24.7 were from small-scale firms. Sectoral break up shows that 65 per cent of the respondents were from manufacturing sector while 35 per cent were from services sector, respectively.
CII-BCI is calculated as a weighted average of the Current Situation Index (CSI) and the Expectation Index (EI), with greater weight given to EI as compared to CSI. These indices are based on questions pertaining to performance of the economy and respondent’s firm. Respondents are asked to rate the current and expected performance on a scale of 0 to 100. A score above 50 indicates positive confidence while a score above 75 would indicate strong positive confidence. On the contrary, a score of less than 50 indicates a weak confidence index.
th85 Business Outlook Survey : Oct. - Dec. 2013
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