CII - 85th Business Outlook Survey October- December 2013

th85 BusinessOutlook Survey

October- December 2013

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Confederation of Indian Industry

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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: [email protected]; 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


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


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


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


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)


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.


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


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


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.


8


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


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


49

35

15

53

39

8


Actual Expected

Export Volume(% of Respondents)

Import Volume(% of Respondents)

18

57

2423

56

21


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.


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CII - 85th Business Outlook Survey October- December 2013

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