India: Lower Demand Dents Sentiment

Indian business sentiment fell for the first time in three months in March, data shows, as companies faced lower demand alongside rising input prices on the back of the nation’s weakening currency (the rupee).

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The MNI India Business Sentiment Indicator, a consistent gauge of “current sentiment” among BSE-listed companies, fell to 62.7 in March from 63.5 in February, MNI data shows. Led primarily by manufacturing firms the fall offset February’s rise in confidence. In contrast, sentiment among construction companies rose significantly and service sector companies were also more optimistic about overall business conditions, MNI said.

Even with the decline in March, confidence overall picked up a little during the first quarter of 2016. While seeing a gradual decline over the course of 2015,  the MNI India Business Sentiment Indicator averaged 62.7 in the three months to March, just up slightly from 61.3 from December.

According to MNI, fewer companies reported an increase in both new orders and export orders and showed that they were also “less bullish on future demand. Nevertheless, companies expanded production and the expectations measure for new orders remained elevated at 68.2.

Firms faced higher prices for their inputs, with the Input Prices Indicator increasing 5.7% on the month to the highest since July 2015. Consequently, companies raised the prices they charged and expected them to increase further in the coming three months in anticipation of higher prices for raw materials.

Another factor that added to companies’ outlays was the depreciation of the rupee. Companies lamented that its weakness made their imports more expensive. The indicator measuring the Effect of the Rupee Exchange Rate fell further into contraction to 46.3 from 48.4 in February, the lowest since June 2015.

Commenting on the latest survey, Chief Economist of MNI Indicators Philip Uglow stated that “the decline in confidence in March was relatively modest and sentiment is still up from the recent trough in December. Importantly most key measures in the survey have stabilised and turned upwards in recent months following the trend decline that has been in place since September 2014.”

“It looks increasingly likely that the Reserve Bank of India (RBI) will cut official interest rates at its April meeting. Note, though, that input prices as well as prices charged have been trending higher recently, which will likely limit the extent of monetary easing.”

 

 

Photo Credit: iStockphoto.com/SheltonMuller

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