India Inc expects better show in Q2

CII survey says majority betting on rise in output, sales.

Rising interest rates and soaring input prices have increased the cost burden, leading to a fall in pre-tax profits for the majority of companies in the first quarter of 2011-12, but most are optimistic about better sales and production in the second quarter, according to a Confederation of Indian Industry survey.

Most companies in both manufacturing and services sectors expected pre-tax profits to go up during the quarter ending September, revealed the survey on ‘Business outlook’. It revealed a slowing in sales in the quarter ended June, with a majority recording a decline or stagnancy in production, but expected it to increase in the next quarter.

The majority registered stagnation or decline in availability of credit in the April-June quarter, which the survey says is a worrisome trend.

Contrasting with official figures of a robust growth of exports in the first quarter of this financial year, the survey showed exports of the majority of companies remained unchanged in the first quarter.

However, they expected the levels to go up in the July-September quarter in terms of volume, unlike experts’ apprehensions that a robust momentum in exports would not be sustained.

Due to the high cost burden, the investment plans of small companies in the manufacturing sector declined and even in the second quarter, most do not plan to increase their investment. The rising interest rates and high input cost burden were also the top two business concerns, revealed the survey.

On capacity expansion for the second quarter of the financial year, the survey showed most companies are expecting to continue with the level of spending as in the first quarter.

In April-June, a majority had 75-100 per cent capacity utilisation. Mostly, these firms were large size. In the current, second quarter, the majority of respondents expected capacity utilisation to be above 75 per cent.

The current situation index of surveyed firms fell by 9.9 points, while the expectation index fell by 8.4 points. The highest number of respondents,

29 per cent, expected economic growth to moderate between 7.7 and 8 per cent for 2011-12, while 23.7 per cent expected it in the range of 8-8.5 per cent.

GDP growth slowed to 7.7 per cent in the first quarter of 2011-12 against 8.8 per cent in the corresponding period of last year.

On inflation, to address which the Reserve Bank of India has raised rates 11 times since March 2010, 55.6 per cent of respondents expected average inflation to be above eight per cent this year, and only a mere 9.9 per cent pegged it in the range of six to seven per cent.

Inflation was 9.22 per cent in July and food inflation moved in double-digits for the week ended August 20, at 10.05 per cent. According to economists, another 25 basis points rate rise by the central bank is expected on September 16.