Business confidence-survey-ficci-september-2014

Business Confidence Survey

September 2014

Economic Affairs and Research Division


Highlights Confidence level being restored among industry members - The perception of respondents with regard to current situation relative to past two quarters noted a marked improvement in the latest round of FICCI’s Business Confidence Survey. The proportion of respondents citing ‘moderately to substantially better’ performance vis-a-vis last six months recorded a significant jump at the economy, industry and firm level in the current survey. Furthermore, participants were optimistic about the near term prospects as well. 93 percent of the companies participating in the survey said that they expect the overall economic situation to be better over the next six months. In the last survey a similar proportion of respondents had indicated likewise. Confidence Index highest in fifteen quarters - the Overall Business Confidence Index stood at 72.7 in the present survey round, which is the highest in fifteen quarters. The index value in the last survey was 69.0. The Current Condition Index increased to 65.4 in the present survey from 57.6 in the previous round. The Expectation Index also indicated a marginal improvement to 76.3 in the current survey round, from 74.6 last time.

Outlook with regard to operational parameters stable - The results with regard to operational parameters have considerably improved when compared to the situation a year ago. However, relative to the previous survey (when a significant increment was noted in proportion of respondents citing better prospects), this time around the improvement was marginal for most parameters. In the current survey, the outlook with regard to sales and exports looked slightly better vis-a-vis the last survey round. Outlook with regard to profits much better compared to the situation a year ago - The proportion of respondents expecting higher profits in near term remained at 43 percent as in the previous survey round. However, this is a significant improvement from just about 17 percent participants stating likewise a year ago.

Buoyancy gradually returning in investment sentiment - In the present survey, 34 percent of the participants anticipated better investment prospects over the next two quarters. This is a significant improvement when compared to 21 percent stating likewise one year back. The confidence of the investors is gradually returning. The new government has geared in to action and we have seen clearances being given to some big ticket projects. The numbers are definitely set to improve going ahead. The government should continue the work to further smoothen the clearance process.

Companies intending to maintain hiring at current levels - Not much change was noted in employment outlook of the participating companies; with a majority 64 percent not expecting to hire over the next six months. The corresponding figure in the last survey round was 63 percent. Further, 30 percent of the respondents indicated that they expect to hire more people in near term.

Majority of the respondents give thumbs up to cabinet’s decision to amend labour laws - The respondents were asked their opinion about the cabinets’ recent approval to the proposal to amend the three archaic labour laws – Apprenticeship Act, Factories Act and the Labour Act of 1988. A majority of the companies participating in the survey felt that the change in laws has been long pending and that the laws should be made industry friendly and transparent. The participating companies felt due cognizance should be given to the welfare of employees as well as employers.



India’s potential to be a global manufacturing hub - the ‘Make in India’ vision of the Hon’ble Prime Minister sends out a clear message about India’s manufacturing potential. However, we need to work in consonance with our competitive edge, identifying products we can specialise in. Given that, we asked the participants to indicate what are the ‘focus’ products where India can create a niche for itself given its physical and human resource endowments. According to companies participating in the survey, following sectors were identified as the ‘focus’ sectors for India where all efforts should be made to ramp up domestic capacities.

In fact, these sectors closely map with the ones indicated by the government during the recent launch of ‘Make in India’ campaign.

Demand situation on the road to recovery - Weak demand has been a concern persistently for over a year now and this has come out evidently in the survey results with about 70 percent respondents citing it as a problem area. However, the results of the present survey indicate that there has been some improvement in the demand situation. In the current survey round though more than half of the respondents (57 percent) said that weak demand is a constraining factor, this was lower than 74 percent stating likewise in the previous survey.

With regard to the credit situation, the participants seemed pretty comfortable especially with regard to availability of credit. Almost 77 percent companies participating in the survey felt that availability of credit was not a problem. The corresponding figure was 75 percent in the last survey and 62 percent a year ago. Still 45 percent of respondents cited cost of credit to be a problem area; however this is significantly lower than 72 percent stating likewise a year back.

Engineering: Heavy and Light

Electrical and Electronic products

Automobiles and Auto Components

Textiles

Steel and Iron

Pharmaceuticals/Medical equipment

Food processing and Agro based

industries

Defence Equipment



Survey Profile The current survey drew responses from companies with a wide sectoral and geographical spread. The survey drew responses from about 150 companies with a turnover ranging from Rs 30 crore to Rs 41, 000 crore. The participating companies belonged to a wide array of sectors such as textiles, cement, pharmaceutical, chemicals, steel and steel products, construction, food processing, electrical equipment and machinery, paper and paper products, financial services. The survey was conducted during the months of July and August 2014.

Detailed Survey Findings

Respondents cite an improvement in the current conditions vis-a-vis last six months

Net Responses*: Current performance vis-à-vis the performance in last six months

* Net responses are measured as the differential between the companies reporting positive and negative responses. Responses indicating status quo are not reckoned

The latest round of FICCI’s Business Confidence Survey noted a marked improvement in the perception of the respondents with regard to current conditions vis-à-vis last six months. A majority 82 percent of the participants in the present survey said that the current economic situation is ‘moderately to substantially better’ vis-à-vis last six months. In the last survey, 48 percent respondents had reported likewise. Only 2 percent of the companies participating in the survey felt that there has been a deterioration in the current economic situation when compared to the previous two quarters. At industry level, 56 percent of the respondents reported that the current industry performance is better relative to the situation six months back. This was 22 percentage points higher than the proportion of respondents stating likewise in the previous survey.

-80

-60

-40

-20

0

20

40

60

80

100

Q1

20

12

-13

Q2

20

12

-13

Q3

20

12

-13

Q4

20

12

-13

Q1

20

13

-14

Q2

20

13

-14

Q3

20

13

-14

Q4

20

13

-14

Q1

20

14

-15

Economy Industry Firm



In the previous survey, no change was reported in the percentage of respondents (which stayed at 41 percent) citing an improvement in the firm level performance vis-à-vis last six months. In the current survey, 60 percent of the participants reported likewise. Further, only 7 percent participants said that the current firm level situation is ‘moderately to substantially worse’ vis-à-vis last six months.

Optimism with regard to future prospects maintained in the current survey

Net Responses*: Expected performance over next six months

* Net responses are measured as the differential between the companies reporting positive and negative responses.

Responses indicating status quo are not reckoned

The previous survey had noted a remarkable improvement in the outlook of the participants. The results of the present survey indicate a continuation of this sanguinity. Once again a whopping 93 percent of the respondents said that overall economic situation is expected to be ‘moderately to substantially better’ over the next two quarters. The remaining 7 percent participating companies indicated no change in the state of affairs over the coming six months. The action oriented approach of government is supporting the optimism amongst participants. In the first 100 days, government has taken a series of measures geared towards taking the economy to a higher growth trajectory. However, timely implementation of announcements will be critical to sustain this recovery. According to current survey results, at industry level, 89 percent of the respondents indicated better prospects over next six months. This was a marginal increase from 82 percent stating likewise in the last survey. Around 9 percent companies participating in the survey said they expect no change in industry level performance over the next two quarters. This improvement at the industry level is reflected in actual data as well. However, there is still some underlying volatility and the trend needs to be closely followed. Further, 81 percent of the participating companies were confident about firm level performance in the coming six months. The corresponding figure was 75 percent in the last survey. While 16 percent of the participants reported that they anticipate no change in the firm level situation over the next two quarters, the remaining 2 percent expected deterioration in performance.

-20

0

20

40

60

80

100

120

Q1

20

12

-13

Q2

20

12

-13

Q3

20

12

-13

Q4

20

12

-13

Q1

20

13

-14

Q2

20

13

-14

Q3

20

13

-14

Q4

20

13

-14

Q1

20

14

-15

Economy Industry Firm



Outlook with regard to operational parameters stable

The results with regard to operational parameters have certainly improved when compared to the situation a year back. However, relative to the previous survey only a marginal improvement was noted. In the current survey, the outlook with regard to sales and exports looked slightly better vis-a-vis the previous survey.

Operational Parameters: Proportion of respondents anticipating better prospects over next six months

The participating companies seemed upbeat about the sales prospects in near term. About three quarter of the respondents indicated that sales are expected to be ‘much higher to higher’ over the next six months. This improvement to some extent can be attributed to the onset of festive season. The corresponding figure in the previous survey was 67 percent. And a year back 39 percent respondents had stated likewise. Further, in the present survey, only 2 percent of respondents anticipated lower sales over the next two quarters. The outlook with regard to profits has noted a significant improvement over the past one year. In the present survey 43 percent of the respondents anticipated ‘much higher to higher’ profits in the coming six months. A year back, 17 percent of the companies had reported likewise. Further, 41 percent of the companies in the current survey expected no change in profit levels over the coming two quarters. The confidence of the investors is getting restored steadily and there has definitely been an improvement over the past year. In the present survey, 34 percent of the participants cited better investment prospects over the next two quarters. This was 13 percentage points higher than the proportion of respondents stating likewise a year back. Further, 54 percent of respondents said that they foresee no change in investments over the next six months.

30

34

43

48

75

0 10 20 30 40 50 60 70 80

Employment

Investments

Profits

Exports

Sales



Prospects for next six months (All figures are in % and refer to proportion of respondents)

Not much change was noted in employment outlook of the participating companies; with a majority 64 percent not expecting to hire over the next six months. The corresponding figure in the last survey was 63 percent. Further, in the current survey, 30 percent of the respondents said that they expect to hire more people in near term. On the outlook with regard to exports, 48 percent participants expected exports to increase over the next two quarters, marginally up from 46 percent stating likewise in the previous round. About 39 percent companies expected exports to remain at current levels in near term.

Overall Business Confidence Survey index highest in fifteen quarters

With an improvement in the current situation as well as in expectations, the Overall Business Confidence Index noted an increase for the fourth consecutive quarter. In the current survey, the Overall Business Confidence Index stood at 72.7 -highest in fifteen quarters. In the previous round the value stood at 69.0. The Current Condition Index increased to 65.4 in the present survey round from 57.8 in the previous round. The Expectation Index also indicated a marginal improvement to 76.3 in the current survey round, from 74.6 last time.

0

10

20

30

40

50

60

70

80

90

FIC

CI

BC

S Q

1 (

20

02

-03

)

FIC

CI

BC

S Q

4 (

20

02

-03

)

FIC

CI

BC

S Q

3 (

20

03

-04

)

FIC

CI

BC

S Q

2 (

20

04

-05

)

FIC

CI

BC

S Q

1 (

20

05

-06

)

FIC

CI

BC

S Q

4 (

20

05

-06

)

FIC

CI

BC

S Q

3 (

20

06

-07

)

FIC

CI

BC

S Q

2 (

20

07

-08

)

FIC

CI

BC

S Q

1 (

20

08

-09

)

FIC

CI

BC

S Q

4 (

20

08

-09

)

FIC

CI

BC

S Q

3 (

20

09

-10

)

FIC

CI

BC

S Q

2 (

20

10

-11

)

FIC

CI

BC

S Q

1 (

20

11

-12

)

FIC

CI

BC

S Q

4 (

20

11

-12

)

FIC

CI

BC

S Q

3 (

20

12

-13

)

FIC

CI

BC

S Q

2 (

20

13

-14

)

FIC

CI

BC

S Q

1 (

20

14

-15

)

Overall Business Confidence Index

Overall business confidence index Current conditions index Expectations index

Prospects for the next six months

Decline Increase 0%-5%

Increase 5%-10%

Increase 10%-20%

Increase 20%-30%

Increase >30%

Sales 4 21 28 33 7 7

Profits 16 39 19 20 5 1

Investments 12 51 20 8 6 3



Key constraining factors for businesses Weak demand has been a concern persistently for over a year now and this has come out evidently in the past survey results with at least about 70 percent respondents citing it as a problem area. However, the results of the latest survey indicate some improvement in the demand situation. In the current survey though more than half of the respondents (57 percent) said that weak demand is a constraining factor, this was lower than 74 percent participants stating likewise in the previous survey. It seems demand is slowly picking up and there has been some turn around in the consumer sentiment.

Expected order book position next six months

In fact, this was further affirmed by the outlook of the respondents with regard to the order book position. About 80 percent respondents cited that they foresee a better order book position over the next two quarters. This was 8 percentage points higher than the proportion of people stating likewise in the previous survey. Moreover, none of the respondents expected a worsening in the order book position. With regard to the credit situation, the participants seemed pretty comfortable especially with regard to the availability of credit. Almost 77 percent companies participating in the survey felt that availability of credit was not a problem. In the last survey the corresponding figure was 75 percent and a year back 62 percent. Still 45 percent sighted cost of credit to be a problem area; however this is significantly lower than 72 percent stating likewise a year back.

80

20

0

72

22

6

0

10

20

30

40

50

60

70

80

90

Better Same Worse

Present Survey Last Survey



Average interest rate charged by the banks on working capital and term loan Working Capital Loan Term Loan

At present Six months

back

One year

Back

At present Six months

Back

One year

back

Turnover up to 500 crore

12.5 12.8 12.9 12.2 12.6 12.9

Turnover over 500 crore

12.0 12.2 12.3 11.4 11.5 11.6

Over the past one year, a sharp drop has been noted in the proportion of respondents indicating raw material prices to be a constraining factor. From 65 percent last year, the proportion has come down to 45 percent in the present survey.



Annexure - Survey at a Glance

FICCI BCS Q1

2013-14

FICCIBCS Q2

2013-14

FICCIBCS Q3

2013-14

FICCI BCS Q4

2013-14

FICCI BCS Q1

2014-15

1a

Current overall economic conditions vis-à-vis the last six months

Moderately to Substantially better 14 32 25

48

82

Same / No change 21 42 52

39

16

Moderately to Substantially worse 65 26 24

13

2

1b

Expectations for overall economic conditions for the next six months


93

93


5

7


2

0

2a

Current industry performance vis-à-vis the last six months


34

56


47

34


20

10

2b

Expectations for industry performance in the next six months


82

89


14

9


4

2

3a

Current firm level performance vis-à-vis the last six months



Moderately to Substantially better

27 36 41

41

60


50

33


9

7

3b

Expectations regarding firm level performance in the next six months


75

81


21

16


4

2 4 Confidence Indices

Current Conditions Index 43.6 52.0 52.9

57.8

65.4

Expectations Index 51.7 63.0 64.8

74.6

76.3

Overall Business Confidence Index 49.0 59.3 60.8

69.0

72.7 5 Problem areas Weak Demand Yes 70 70 70 74 57 No 30 30 30 26 43 Threat of imports Yes 35 25 21 28 28 No 65 75 79 72 72

Constrained availability of credit

Yes 38 31 40 25 23 No 62 69 60 75 77 High cost of credit Yes 72 64 53 47 45 No 28 36 47 53 55 Rising raw material prices Yes 69 67 65 37 45 No 31 33 35 63 55 6 Present capacity utilization Less than 25% 8 9 4 2 0 Between 25% and 50% 12 15 15 9 12 Between 50% and 75% 39 33 38 36 34 More than 75% 41 43 42 53 54

7 Prospects for the next six months



Investments

Much higher 2 8 4 8 2 Higher 19 37 20 32 32 Same / No change 51 38 56 54 54 Lower 29 17 20 6 12 Sales Much higher 2 4 8 5 11 Higher 37 53 48 62 64 Same / No change 53 33 37 27 23 Lower 8 11 8 5 2 Selling price Much higher 0 0 0 2 0 Higher 11 21 25 16 10 Same / No change 67 67 61 75 81 Lower 21 12 14 8 10 Profit Much higher 0 0 0 6 2 Higher 17 26 29 37 41 Same / No change 43 43 45 48 41 Lower 40 30 25 9 16 Exports Much higher 4 2 3 5 3 Higher 19 43 39 41 45 Same / No change 56 41 47 43 39 Lower 22 13 11 11 12 Employment Much higher 0 2 2 2 0 Higher 12 26 18 27 30 Same / No change 67 57 67 63 64 Lower 22 15 14 8 7

Business confidence-survey-ficci-september-2014

Business

Transcript of Business confidence-survey-ficci-september-2014