MNI India Business Report September 2013

MNI India Business Report September 2013

Insight and data for better decisions

MNI India Business Report - September 20131

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, EconomistLorena Castellanos, Economist

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MNI India Business Report - September 2013 2

MNI India Business Report - September 2013Contents

3 Editorial

5 Executive Summary

9 Economic Landscape

13 Indicators

14 MNI India Business Indicator

15 Production

16 New Orders

17 Export Orders

18 Productive Capacity

20 Order Backlogs

21 Employment

22 Inventories

23 Input Prices

24 Prices Received

25 Financial Position

26 Interest Rates Paid

28 Effect of Rupee Exchange Rate

29 Supplier Delivery Times

30 Availability of Credit

31 What the Panel Said

33 Data Tables

37 Methodology

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Mervyn King, former governor of the Bank of England, once said that central bankers should aspire to be boring because, “boring is best”. Not so these days.

Rock stars, Onions and Inflation


Mervyn King, former governor of the Bank of England, once said that central bankers should aspire to be boring because, “boring is best”.

Not so these days. “Helicopter Ben” was drafted to the Federal Reserve to save the US economy. “Super Mario” took the helm at the European Central Bank, while “Rock Star” central banker Mark Carney took over at the Bank of England earlier this year.

Step forward Mr Raghuram Rajan, former IMF Chief Economist and holder of a PhD from the Massachusetts Institute of Technology. Media hasn’t settled on a single moniker yet, but whether he’s eventually the “Governator” or simply a “Superstar” central banker, he’s already made waves. At his first monetary meeting on September 20, Rajan stamped his authority by surprising markets and raising the repo rate 25 basis points to 7.5%.

This was a bold step for a new governor who has seen growth in India grind to its lowest level in more than three years in the three months to June. The move may be as much about flexing his anti-inflation credentials as well as preparing for the imminent Fed tapering.

“Let us remember that postponement of tapering is only that – a postponement,” Rajan said after the rate hike. “We must use this time to create a bulletproof national balance sheet and growth agenda that creates confidence in investors and citizens alike.”

While the central bank has a key role to play in managing the demand side of the economy, many of India’s current problems lie on the supply side, which are issues the government needs to tackle - and they deserve most of the current flack for doing very little. Greater infrastructure planning, cuts to overbearing regulation and dealing with corruption are just a few things they need to get to grips with.

The RBI’s decision to tighten monetary policy in response to higher inflation expectations hasn’t escaped criticism given the current lack of growth. While wholesale price inflation rose to 6.1% in August,

from 5.8% in July - further above the central bank’s 5.5% end-year target – most of this was due to higher prices of food and fuel. Core inflation, which excludes food and fuel, stood at just 1.9%.

The price of onions has risen by an eye watering 245% over the past year. For a country where the humble onion is used in just about every dish, it’s a key issue and has been blamed for toppling two governments in the past 30 years. But should monetary policy concern itself with the price of onions or the wider rise in food prices? Certainly the former appears to be due to a combination of a poor harvest and also a lot of hoarding from some less than scrupulous wholesalers. Monetary policy can do nothing to address such problems.

Possibly the RBI should target core inflation which should give a better picture of underlying price pressures in the economy, but as previous RBI governor Duvvuri Subbarao has pointed out, how can a measure of core inflation exclude nearly 65% of the consumption basket be termed ‘core’. He’s got a point and it underlies the difficulty faced by the central bank in trying to manage inflation expectations.

While new superstar Rajan might have been brought in to save India, his efforts will be to no avail should the government not play its part to drive reforms, support growth and most of all sort out those onions…

Philip UglowChief EconomistMNI Indicators

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Most of the indicators in the report showed a continued recovery in September, and it is likely that the downturn in overall business conditions was due to concerns surrounding the rupee.

Executive Summary


The MNI India Business Indicator fell to 59.4 in September from 64.0 in August, but remained significantly above the low seen in April.

Most of the indicators in the report showed a continued recovery in September, and it is likely that the downturn in overall business conditions was due to concerns surrounding the rupee, with companies reporting further pain from the decline in the exchange rate.

The fall in the overall Business Indicator was driven by a marked fall in the construction sector, with more businesses reporting worse conditions than a month earlier. There was a moderate decline in services, while manufacturing remained broadly unchanged, but both still remained in expansion.

The Production Indicator increased to 67.3 in September from 59.9 in August, the highest reading since the series started in November 2012 and up significantly from the low seen in April.

The New Orders Indicator increased to 69.1 in September from 64.0 in August, the highest level since November 2012 when the series started. The latest increase in New Orders marked the fifth consecutive monthly rise and put it above the three month average of 65.0.

Export Orders increased sharply to 63.2 in September from 55.0 in August, continuing the rise since falling into contraction in April.

The Employment Indicator has remained relatively stable since the series started in April, and September saw little change, with companies reporting moderate employment growth.

The Input Price Indicator increased to 74.1 in September, from 66.7 in August, led by strong price rises in both manufacturing and services.

For the second consecutive month, the current Financial Position of companies improved, led by

greater optimism among manufacturers.

The Financial Position Indicator increased to 72.3 in September from 68.1 in August, the highest since the series started in November 2012, with the indicator trending upwards since April save for a blip down in July. A sharp deterioration in the financial positions of construction firms was offset by an increase in manufacturing and also service sector firms.

The Effect of the Rupee Exchange Rate Indicator fell for the third consecutive month in September, with businesses reporting that the depreciation in the currency was hurting business.

Credit costs faced by Indian companies increased in September with the Interest Rates Paid Indicator rising to 68.4, the highest reading since July, and up 3.6 points from August when the indicator stood at 64.8.

MNI India Business Indicator

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Overview

Jul-13 Aug -13 Sep -13Highest

Since Lowest

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Monthly Change

Monthly % Change


Current Conditions 51.8 64.0 59.4 - Jul-13 58.4 -4.6 -7.3%

Future Expectations 67.6 75.5 77.1 series high - 73.4 1.6 2.2%

Production

Current Conditions 56.9 59.9 67.3 series high - 61.4 7.4 12.4%


New Orders



Export Orders



Productive Capacity



Order Backlogs

Current Conditions 49.4 47.0 52.9 May-13 - 49.8 5.9 12.6%

Future Expectations 43.6 39.4 57.5 May-13 - 46.8 18.1 46.0%

Employment

Current Conditions 51.3 54.1 53.3 - Jul-13 52.9 -0.8 -1.6%

Future Expectations 53.6 52.0 53.4 Jul-13 - 53.0 1.4 2.8%

Inventories



Input Prices

Current Conditions 79.6 66.7 74.1 Jul-13 - 73.5 7.4 11.1%


Prices Received



Financial Position



Interest Rates Paid


Future Expectations 65.9 70.2 65.2 - May-13 67.1 -5.0 -7.1%

Effect of Rupee Exchange

Current Conditions 45.1 39.6 31.6 - series low 38.8 -8.0 -20.3%

Future Expectations 55.8 43.8 32.7 - series low 44.1 -11.1 -25.4%

Supplier Delivery Times

Current Conditions 57.1 52.5 58.4 Jun-13 - 56.0 5.9 11.2%

Future Expectations 50.9 49.6 56.1 May-13 - 52.2 6.5 13.0%

Availability of Credit



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Economic news over the past month has done little to lessen the economic gloom surrounding India.

Economic growth in India slowed to 4.4% in April-June 2013 compared with the same period a year earlier, the lowest in four years.

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Decisive policy action from the government remains lacking and the possibility of any substantial reform appears unlikely due to the looming national elections in the first half of 2014.

Economic Landscape


Economic news over the past month has done little to lessen the economic gloom surrounding India. Slow economic growth, the fall in the rupee, stubborn inflation and high fiscal and current account deficits, all continue to plague India. GDP growth slumped to 4.4% in April-June compared with the same period a year earlier, the weakest since 2009. While the current account deficit and industrial production improved slightly and prices eased in August, overall demand in the economy remained weak. The new governor of the Reserve Bank of India, Raghuram Rajan, has so far managed to placate markets and his first move to raise interest rates has been seen as a positive step to curb inflation – albeit at the expense of much needed growth.

Slowest GDP growth in four yearsEconomic growth in India slowed to 4.4% in April-June 2013 compared with the same period a year earlier, the lowest in four years. Output was hit due to a contraction in manufacturing, declining by 1.2% on the year, compared with a fall of 1% in April-June 2012, and mining & quarrying which declined by 2.8% compared with growth of 0.4% in the same period a year earlier. Services, which accounts for the highest proportion of total GDP, grew at 6.6% on the year, compared with growth of 7.6% in 2012.

Slowing Economic Growth

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The continued weakness is another blow to the government, which has been trying to adopt measures to boost the economy, and the latest data makes it less likely the government will achieve the Reserve Bank of India’s GDP forecast of 5.5% for the fiscal year 2013-14. The decision by new governor of the central bank, Raghuram Rajan, to increase the policy rate to 7.5% from 7.25% on September 20 to curb inflation will also hamper growth.

While a good monsoon has raised hopes for stronger agriculture growth, weak growth in both services and industry is likely to remain, as both global and domestic factors continue to weigh.


Industrial production improvesIndustrial production posted a surprisingly strong increase of 2.6% in July compared with a year earlier. Although growth is still weak, it was an improvement over the past two months which registered a decline of 2.3% on average. Manufacturing rose 3.0%, but mining continued to fall, dropping by 2.3% in July.

GDP Growth y/y %

Source: Central Statistics Organisation, India

Industrial Production y/y %

Source: Central Statistics Organisation, India


To sustain growth, the government needs to take some bold measures such as fast track implementation of projects, simplify taxation laws and revive private investments in manufacturing.

The trade deficit shrinks in AugustThe trade deficit narrowed to $10.91 billion in August from $12.29 billion in July and below the $14.2 billion shortfall posted in August a year earlier.

India’s exports grew by 13.0% in August to $26.14 billion compared with $23.13 billion in the same month a year earlier. Imports were little changed falling 0.68% to $37.05 billion, down from $37.31 in August 2012.

substantially weaker Rupee should also eventually help to boost the competitiveness of Indian goods.

India’s current account deficit rose to 4.9% of GDP in the first quarter ending June compared with 3.6% in the quarter ending March and also above the 3.9% posted in the same period a year earlier.

The August trade data pointed to some improvement, although the fall in the rupee, which will have the immediate effect of increasing the cost of imports, makes it less likely that the government will hit its current account deficit target of 3.7% of GDP for the fiscal year.

No escape from rising pricesIndia’s headline inflation, measured by the wholesale price index, increased to 6.1% in August from 5.79% in July, further above the government’s end-year target of 5.5%.

Food price inflation increased to 18.18% in August against 11.91% in July, while fuel prices rose marginally to 11.34% on the year from 11.31% in the previous month.

Wholesale Price Inflation Rising Again

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India‘s Trade Deficit

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Demand for oil has continued to strain the import bill due to the continued rise in the oil price, with 70% of India’s oil and gas requirements being imported. Gold imports plummeted from $2.2 billion to $650 million in August on the back of stringent taxes and import controls enforced by the government.

An improvement in the external environment, with a rise in demand from the US and major European economies, has helped demand for exports. A

Merchandise Trade Balance (INR B)

Source: Reserve Bank of India

Wholesale Price Inflation y/y %

Source: Office of the Economic Advisor, India


Although, consumer price inflation eased to 9.52% in August from 9.64% in July, it remained stubbornly high.

The authorities face the problem of stabilising the currency and boosting the economy as well as ensuring inflation is kept in check. In a surprise move the new governor of the central bank, Raghuram Rajan, increased the policy repo rate on September 20 to 7.5% from 7.25% citing inflation worries. The move should also help to bolster the currency.

The government’s efforts to reduce the fuel subsidy bill (by raising administered fuel prices), the ongoing weakness of the rupee and supply side shortages suggest that reducing inflation from current levels will be challenging.

Sticky Consumer Price Inflation

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Measures to contain the fall of the rupeeThe Rupee has fallen sharply since US Federal Reserve Chairman Ben Bernanke warned in May that the Fed could start to taper its bond purchases this year. India has been hit harder than other emerging markets due to its sizeable current account deficit and also a growing inability of the government to move forward with reforms to drive investment – all of which

have led to significant capital outflows. The rupee has fallen around 24% since May to reach an all time low against the US dollar at the end of August.

On September 4, RBI Governor Rajan took office and announced a number of steps to restore confidence and the currency subsequently rebounded nearly 5.5% as of September 18.

Measures included the introduction of swap windows to banks for fresh dollar deposits mobilised from NRIs (Non-Resident Indians), a roadmap for more rupee trade settlements and the introduction of derivative products such as interest rate swaps. These were in addition to certain measures introduced by the outgoing governor, most critical of which was the introduction of a swap facility by the RBI to sell dollars to the nation’s largest oil importers.

Rajan also intends to liberalise banking and provide greater financial access to people in all parts of the country. He expects to announce a round of new bank licences early next year which would allow foreign banks to operate in India as wholly owned subsidiaries.

In addition to these measures, the Fed’s decision to delay the taper of its bond buying programme has provided some relief and strength to the currency.

Consumer Price Inflation y/y %

Source: MOSPI

GDP Consensus Forecast Revised Down

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Source: MOSPI

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Indicators


The MNI India Business Indicator fell to 59.4 in September from 64.0 in August, but remained significantly above the low seen in April.

Most of the indicators in the report showed a continued recovery in September, and it is likely that the downturn in overall business conditions was due to concerns surrounding the rupee, with companies reporting further pain from the decline in the exchange rate.

The 7.3% monthly decline in the Business Indicator was driven by a marked fall in the construction sector, with more businesses reporting worse conditions than a month earlier. There was a more moderate decline in services, while manufacturing remained broadly unchanged but both still remained in expansion.

Recent official data has highlighted the continued weakness in the economy. GDP growth slowed to 4.4% in the April-June quarter compared with the same period last year, the slowest growth since 2009. In spite of the turmoil in the currency and equity markets, the Business Indicator has trended higher since April when it fell to 47.5, below the breakeven 50 level.

Expectations for conditions in three months’ time brightened further in September, rising to 77.1 from 75.5 previously, potentially helped by the upcoming festival season. It would also appear that companies have some faith that the government and the central bank will help to steer India through the current turmoil.

59.4MNI India Business Indicator Drops Back In September


Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13

Current Conditions 56.1 47.5 50.5 60.6 51.8 64.0 59.4

Future Expectations 55.4 49.7 52.0 60.6 67.6 75.5 77.1

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Current Conditions

Future Expectations

Manufacturers reported an increase in future conditions, while the indicator declined for services and construction, although remained above the breakeven level.

For business expectations in the next three months, thirteen out of the 15 indicators increased, with the exception of Interest Rates Paid and the Effect of the Rupee Exchange Rate.


The Production Indicator increased to 67.3 in September from 59.9 in August, the highest reading since the series started in November 2012.

The manufacturing sector led the improvement while the Production Indicator for Services and Construction fell between August and September, but remained above the breakeven 50 level.

Production has bounced back sharply in recent months, having hit a low of 41.0 in April and remained below 50 in May. The pick-up came ahead of latest official data on industrial production, which showed an increase of 2.6% in July from the same period last year, the highest growth since March 2013. Growth in New Orders, which has strengthened each month since May, may also support Production over the coming months.

Having fallen to an average of 47.1 in the quarter ending June, pointing to contraction, the Production Indicator bounced back sharply to 61.4 in the quarter ending September.

Future expectations for Production remained higher than current conditions, suggesting that firms are optimistic and expect improved demand for their goods and services. Expectations for the following three months increased to 76.8 in September, up from 71.8, a rise of 7% on the month.

Production Highest in 11 Months

Production




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Production Rises Sharply

Current Conditions

Future Expectations

MNI Production Leads the Way

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Industrial Production y/y % (RHS)*

MNI Production

*Source: Central Statistical Organisation, India


The New Orders Indicator increased to 69.1 in September from 64.0 in August, the highest level since November 2012 when the series started.

The latest increase in New Orders marked the fifth consecutive monthly rise and put it above the three month average of 65.0. The pick-up in September could prompt a further improvement in industrial output in the future, as the two indicators are closely correlated. Manufacturing and construction firms both indicated an improvement in New Orders, while services posted a fall compared with August, although remained well above the 50 breakeven mark.

Expectations for New Orders in three months also increased in September, to 78.5, up from 75.0 in August. With the festive season approaching, companies reported high expectations for New Orders and increased demand for goods and services.

New Orders Record High

New Orders




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New Orders Highest on Record

Current Conditions

Future Expectations

“Production has increased in the current month due to new orders coming.”Building materials Construction Company


Export Orders increased sharply to 63.2 in September from 55.0 in August, continuing the increase seen since orders fell into contraction in April.

The improvement in the indicator, the highest reading since the series began in February this year, was driven mainly by manufacturing companies which saw a sharp improvement. The Indicator for construction companies dropped to the breakeven mark, while services sector companies fell slightly but remained over 50.

The rupee has fallen sharply against the US dollar since May, when expectations grew that the US Federal Reserve would cut back on Quantitative Easing soon. India has been one of the worst affected countries due to its large current account deficit and fiscal deficit.

While the rupee has bounced back from the low of 68.85 on August 28, the currency is still some 14% down since the beginning of April. The fall in the currency will have the immediate effect of making Indian exports more competitive, although India’s reliance on imports of oil means increased costs for most companies.

Expectations for three months’ time also increased to 75.5 in September from 62.6 in August as companies look for an export boost following the currency depreciation, coupled with an improvement in trading partners’ demand conditions.

Export Orders Highest since February

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Export Orders Pick Up in September

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Export Orders




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Exports of Goods and Services (INR B, 2004-2005 Prices)

Source: Central Statistical Organisation, India


Productive Capacity hit the highest level since the series began in November 2012, rising to 64.0 in September from 61.7 in August.

The indicator has been on a rising trend since April this year, increasing strongly by 32.0% in the quarter ending September to 60.4, compared with 45.7 in the quarter ending June.

The improvement in Productive Capacity in September was led by manufacturing and construction companies. Capacity of service sector firms remained broadly unchanged, but at a higher level than both manufacturing and construction.

Companies remained more optimistic about the future, as Expectations for Productive Capacity in three months’ time rose to 70.3 from 67.4 in August with increases across all sectors.

Productive Capacity Highest since November

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Productive Capacity on Upward Trend

Current Conditions

Future Expectations

Productive Capacity




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Production and New Orders picked up led by optimism among manufacturers.

The Production Indicator rose to 63.2 from 59.9 in August.


Order Backlogs moved back above the breakeven 50 level in September, rising to 52.9 from 47.0 in August, suggesting a strengthening in demand conditions this month.

Services, manufacturing and construction firms all showed growth in backlogs in September, following the contraction seen in August.

In September, Order Backlogs increased to their highest level since May. In contrast to most other indicators in the report which showed a quarterly increase, there was a drop 9.8% in the quarter ending September compared with the quarter ending June. The Future Expectations Indicator jumped to 57.5 in September from 39.4 in August, the first time above the benchmark level of 50 since May.

Order Backlogs Back Above 50

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Order Backlogs Expectations Up Makedly

Current Conditions

Future Expectations

Order Backlogs


Current Conditions - 57.8 59.3 48.5 49.4 47.0 52.9

Future Expectations - - 59.6 32.8 43.6 39.4 57.5


The Employment Indicator has remained relatively stable since the series started in April, and September saw little change, with companies reporting moderate employment growth.

Between August and September the Employment Indicator fell 1.6% from 54.1 to 53.3, though was still above the three month average of 52.9.

The small fall was led by a decline in the indicator for manufacturing companies, although this remained above the 50 breakeven level. There was a rise in the indicator for services compared with August, with it moving further into expansion territory and rising above that for manufacturing.

For construction, the employment indicator has remained the same for the past two months with most firms saying that the number of employees was “just right”.

Expectations for employment in three months’ time increased by 2.8% to 53.4 in September, up from 52.0 in August.

The increase in the future conditions indicator was led by manufacturing companies. Services posted a fall but remained in expansion, while the indicator for construction fell below the 50 breakeven level.

Employment Trend Remains Stable

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Employment Fall Slightly

Current Conditions

Future Expectations

Employment




“There are working capital constraints, skills gaps, and a shortage of manpower in core areas, and low morale of employees due to no pay revision since 1997.”Automobile parts manufacturer


Stock levels at companies touched a new record high this month as the Inventory level of Finished Goods Indicator increased by 16.4% to 60.1 in September from 51.6 in August.

Both manufacturing and construction companies indicated an increase in stocks in September as compared with August, with manufacturing inventories moving from contraction to expansion.

Future expectations for the next three months also increased, rising to 53.7 in September from 52.9 in August. The indicator posted its highest reading since May 2013 and it was the second consecutive month the indicator was above 50 benchmark level.

Future conditions for inventories have been in contraction for manufacturing companies for the past two months, but rose above 50 in September.

Inventories Rises to New High

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Inventories Recover in September

Current Conditions

Future Expectations

Inventories





The Input Price indicator increased to 74.1 in September, from 66.7 in August.

Oil prices have risen sharply in recent months. Coupled with the depreciation in the rupee businesses face a significant increase in the cost of their imported raw materials.

Both services and manufacturing companies indicated an increase in the Input Price Indicator in September, with growth fastest in the latter.

Expectations for three months’ time also increased, to 72.9 in September from 62.1 in August, the highest reading since July. On a quarterly basis, though, future expectations of input prices fell by 1.7% in the quarter ending September compared with the quarter ending June.

In September, expectations for input price growth in the next three months in construction and manufacturing outstripped services.

Input Prices Increase in September

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Input Prices at High Levels

Current Conditions

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Input Prices




“We have increased the prices of our products due to an increase in the input prices”. Electrical components manufacturer

“Input Prices are high due to the high exchange rate“.Industrial goods manufacturer


After inflationary pressures eased back in August, Prices Received turned higher again in September, following recent strong growth in Input Prices.

The Prices Received Indicator rose to 61.8 in September from 56.6 in August, with increases seen in all sectors, led by construction which saw a jump in prices from contraction to expansion. Higher prices charged by manufacturing and services companies also boosted the headline indicator.

Prices Received rose sharply in the three months to September to 61.8, having fallen into contraction in the quarter ending June to 44.8.

In spite of the large monthly drop in August, the indicator has trended upwards since June, consistent with the recent acceleration in consumer prices. Official inflation data showed the Wholesale Price Index rose 6.1% on the year in August from 5.79% in July, led by the increased cost of food.

The continued high level of inflation expectations was cited by new Reserve Bank of India Governor Raghuram Rajan as the reason the central bank surprisingly hiked its key interest rate 25 basis points to 7.5% in September.

Expectations for Prices Received in three months’ time picked up in September to 67.0 from 57.0 in August.

Prices ReceivedInflationary Pressures Up in Third Quarter

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65

70

75

Nov

-12

Dec

-12

Jan-

13

Feb-

13

Mar

-13

Apr-

13

May

-13

Jun-

13

Jul-1

3

Aug-

13

Sep-

13

Prices Received Higher Again

Current Conditions

Future Expectations

Prices Recived




Prices Received and Wholesale Price Inflation

4

5

6

7

8

9

10

30

40

50

60

70

80

Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13

MNI Prices Received

Wholesale Price Inflation y/y %*

*Source: Office of the Economic Advisor, India


For the second consecutive month, the current Financial Position of companies improved led by greater optimism among manufacturers.

The Financial Position Indicator increased to 72.3 in September from 68.1 in August, the highest since the series started in November 2012, with the indicator trending upwards since April save for a blip down in July.

A sharp deterioration of the financial positions of construction firms was offset by an improvement in manufacturing and also service sector firms.

Expectations for three months’ time also improved. The future conditions indicator rose to 83.3 in September from 78.0 in August driven by an improvement in expectations of the construction, and manufacturing companies included in the survey. On the contrary, services companies expectations worsened in September but remained at high levels.

Both current conditions and future expectations have trended higher since bottoming in May and April respectively. For the quarter ending September, the Financial Position Indicator increased to 66.0 from 57.5 in the quarter to June and 58.0 in the three months to March. Expectations jumped to an average of 78.2 in the three months to September compared with 57.5 in the previous quarter.

Financial Position At Record High

72.3

45

55

65

75

85

Nov

-12

Dec

-12

Jan-

13

Feb-

13

Mar

-13

Apr-

13

May

-13

Jun-

13

Jul-1

3

Aug-

13

Sep-

13

Financial Position Improves

Current Conditions

Future Expectations

Financial Position




“Business is growing and the financial position of the company is also good, company is mainly in exports so rupee depreciation is helping the company, number of clients is also increasing.”Support services company


Credit costs faced by Indian companies increased in September with the Interest Rates Paid Indicator rising to 68.4 in September, the highest reading since July, and up 3.6 points from August when the indicator stood at 64.8.

In July, the last Governor of the Central Bank, Duvurri Subbarao effectively increased interest rates without touching the policy rate. He raised the cost of borrowing under the marginal standing facility by 200 basis points to 10.25% in order to bring stability to the foreign exchange market in the short term.

Although more construction companies reported they paid the same interest rates in September relative to August, more services and manufacturing companies said they faced higher credit costs. The percentage of services companies reporting higher interest rates paid compared with the previous month increased to 41% in September from 30% in August while the percentage of manufacturing companies rose to 42% in September from 36% in August.

While expectations for three months’ time dropped to 65.2 in September from 70.2 in August, the survey was carried out before the decision by the Reserve Bank of India to increase official interest rates in September. The decline this month was due to more manufacturing companies reporting that they expected interest rates to remain the same rather than increase over the next three months.

Interest Rates Paid Highest since July

68.4

45

50

55

60

65

70

75

Feb-

13

Mar

-13

Apr-

13

May

-13

Jun-

13

Jul-1

3

Aug-

13

Sep-

13

Interest Rates Paid

Current Conditions

Future Expectations

Interest Rates Paid




Spitzzeile Titel27

w

The Effect of the Rupee Exchange Rate Indicator dropped to 31.6 in September from 39.6 in August.

Depreciation of the Rupee continued to hurt business, with current and future indicators worsening.


The Effect of the Rupee Exchange Indicator fell for the third consecutive month in September, with companies reporting that the depreciation in the currency was hurting business.

Currency depreciations are often thought to be positive for businesses. The plunge in the Effect of the Rupee Exchange Rate Indicator, however, belies this and shows how India’s reliance on imports of oil, which have seen a sharp price rise, are more important than the competitive advantage the devaluation brings for exporters.

The Effect of the Rupee Exchange Rate Indicator dropped to 31.6 in September from 39.6 in August, the lowest level since the series began in November 2012.

Expectations for three months’ time worsened for the third consecutive month. The Future Expectations Indicator fell to 32.7 in September from 43.8 in August, suggesting businesses are expecting further pain in the future.

The rupee has fallen sharply since US Federal Reserve Chairman Ben Bernanke warned in May that the Federal Reserve could start to taper its bond purchases this year. The announcement was followed by large capital outflows, pushing the rupee down 24% to hit an all-time low against the US dollar at the end of August.

On September 4, new Reserve Bank of India Governor Rajan and announced a number of steps to restore confidence. The currency has subsequently stabilised.

Effect of Rupee Exchange Rate At Record Low

31.6

30

40

50

60

70

80

Nov

-12

Dec

-12

Jan-

13

Feb-

13

Mar

-13

Apr-

13

May

-13

Jun-

13

Jul-1

3

Aug-

13

Sep-

13

Effect of Rupee Exchange Rate

Current Conditions

Future Expectations





“Business condition is not good, financial position is not good because of Rupee fluctuations. The company imports some raw materials so the exchange rate is hurting.“Manufacturer


Supplier Delivery Times lengthened in September with the indicator standing at 58.4, up from 52.5 in August.

All sectors reported higher delivery times compared with August.

Expectations for the next three months also improved, with the indicator measuring future conditions jumping back over the 50 break even, to 56.1 in September from 49.6 in August.

Supplier Delivery Times Highest since June

58.4

39

44

49

54

59


Supplier Delivery Times Move Higher

Current Conditions

Future Expectations

Supplier Delivery Times





The indicator measuring the Availability of Credit increased to 61.9 in September from 56.3 in August, posting the highest reading since the series began in November 2012 and continuing the upward trend seen since April 2013.

The latest improvement was driven by improved credit availability for both manufacturing and services companies.

Expectations for three months’ time rose to 65.3 in September from 59.0 in August, posting a record high as manufacturing, services and construction companies reported improved future conditions regarding credit availability in September.

Availability of Credit Rises Markedly

61.9

40

45

50

55

60

65

Nov

-12

Dec

-12

Jan-

13

Feb-

13

Mar

-13

Apr-

13

May

-13

Jun-

13

Jul-1

3

Aug-

13

Sep-

13

Availability of Credit Rises Further

Current Conditions

Future Expectations





RBI Domestic Credit

0%

20%

40%

60%

80%

100%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13

Domestic Credit y/y % (RHS)

Domestic Credit (INR B)

Source: Reserve Bank of India

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A selection of comments from the MNI India Business Sentiment panel of companies surveyed over the past month.

What the Panel Said

“Business is not going well because orders are less but the company is expecting good business in the coming three months because of festival season.” Iron and steel manufacturing company

“The company is waiting to grow business in next few months because of festival season. Production rate is much increased.” Food retailer

“Production has decreased compared with last month. The company is looking for new clients as local market conditions are not in favour of the business.“ Building materials construction company.

“There is an increase in the cost of raw materials and there is less demand for products; profitability has gone down.” Building materials construction company.

“Imports are more than exports, so it is adversely affecting our business.” Chemicals manufacturing company

“Input prices are high due to the poor exchange rate. Currently market is not good, but there are chances of improvements.” Electrical components manufacturing company

“Petrol prices are higher affecting transportation costs, labour problems are there and interest rates are quite high.” Medical equipment manufacturing company

“Business is growing and the financial position of the company is also good, company is mainly in exports so rupee depreciation is helping the company, number of clients is also increasing.” Support services company

“Business is same as compared with last month, but expecting a slow down due to the monsoon.” Real estate holding and development company

“Business is going good and the financial position of company is better as compared with last month.” Hotelier

“We don‘t export our products, but 60% of the input devices are purchased from Europe, so declining Rupee is affecting a lot.” Electrical components manufacturing company


Spitzzeile Titel33

34 Historical Summary

35 Historical Records

36 Historical Records - Quarterly

Data Tables


Historical Summary

2012 2013

Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep


Current Conditions 56.8 63.6 60.6 53.6 56.1 47.5 50.5 60.6 51.8 64.0 59.4

Future Expectations - - - 53.8 55.4 49.7 52.0 60.6 67.6 75.5 77.1

Production



New Orders



Export Orders

Current Conditions - - - 53.7 49.5 41.3 43.7 52.9 57.7 55.0 63.2


Productive Capacity



Order Backlogs

Current Conditions - - - - - 57.8 59.3 48.5 49.4 47.0 52.9

Future Expectations - - - - - - 59.6 32.8 43.6 39.4 57.5

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

Future Expectations - - - - 63.7 52.9 50.0 71.7 65.9 70.2 65.2




Supplier Delivery Time







Historical Records

2012-2013

Minimum Maximum Median Mean


Current Conditions 47.5 64.0 56.8 56.8

Future Expectations 49.7 77.1 61.5 58.0

Production



New Orders



Export Orders



Productive Capacity



Order Backlogs



Employment



Inventories



Input Prices



Prices Received



Financial Position



Interest Rates Paid













Historical Records - Quarterly

Q1 13 Q2 13 Q3 13 Quarterly Change Quarterly % Change


Current Conditions 56.8 52.9 58.4 5.5 10.4%

Future Expectations 54.6 54.1 73.4 19.3 35.7%

Production



New Orders



Export Orders



Productive Capacity



Order Backlogs

Current Conditions - 55.2 49.8 -5.4 -9.8%

Future Expectations - 46.2 46.8 0.6 1.4%

Employment

Current Conditions - 52.4 52.9 0.5 0.9%


Inventories



Input Prices


Future Expectations - 70.9 69.7 -1.2 -1.7%

Prices Received



Financial Position



Interest Rates Paid




Current Conditions 71.8 55.9 38.8 -17.1 -30.7%

Future Expectations 71.1 58.9 44.1 -14.8 -25.1%








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.

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MNI India Business Report September 2013

Economy & Finance

Transcript of MNI India Business Report September 2013