FICCI survey detects 'visible signs' of capital goods recovery

As per a recent survey conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI) on the domestic manufacturing sector, there were visible signs of revival in capital goods, along with a significant improvement in export outlook.

The survey further noted that for the fourth quarter, that is, January to March of this fiscal, the percentage of respondents reporting higher production increased significantly compared to the same period last year. Furthermore, the proportion of respondents reporting higher output growth during Q-4 increased to 55 percent from 47 percent in Q-3, the chamber said.

In terms of order books, 51 percent of the respondents in Q-4 are expecting a higher number of orders as against 42 percent of Q3, thus indicating a sign of revival.

In terms of capacity addition and utilization, the survey results revealed that though capital goods showed visible signs of revival, the future investment outlook remains pessimistic, as 64 percent respondents in Q-3 reported that they are not planning any capacity additions for the next six months. High raw material prices, low domestic and export demand, exchange rate appreciation, increasing imports, excess capacities and a shortage of working capital finance remain some of the major constraints which are affecting expansion plans of the respondents.

Furthermore, overall capacity utilisation in manufacturing remained low and averaged at 77 percent for Q-3. In some sectors like electronics and electrical, automotive, capital goods, textiles, textiles machinery, leather and footwear, metal and metal products and machine tools, average capacity utilisation either increased or remained almost the same in Q-3.

The inventory scenario, the FICCI said, remained more or less the same, as 90 percent respondents reported that they maintained either more or same level of inventory.

The outlook for exports, on the other hand, seemed marginally positive, as 47 percent of the participants expected a rise in the exports for Q-4 while 34 percent expected exports to continue on the same path as that of the corresponding quarter last year. Respondents also stated that Rupee appreciation affected exports during Q-3 by up to 5 percent.

Hiring outlook for the sector remained subdued, as 70 percent of the respondents mentioned that they were not likely to hire additional workforce in the next three months. This proportion declined as compared to the previous quarter, wherein 85 percent of the respondents were not in favour of hiring additional workforce.

Also, the average interest rate paid by the manufacturers remained the same as that of the previous quarter, standing at 11 percent per annum. However, the highest rate continued to be 16 percent per annum, the survey noted.

The cost of production as a percentage of sales for manufacturers in the survey rose significantly for 62 percent respondents in Q-3, primarily due to an increase in the cost of raw materials, wages, power cost and higher tax rates on certain products.

In terms of sectoral performance, the FICCI survey indicated that high growth is expected in automotive and capital goods, moderate growth in cement and ceramics, chemicals and pharmaceuticals, leather and footwear, paper, machine tools, metals and metal products, electronics and electrical and food products, and low growth in textile machinery and textiles sector, in Q4 of this fiscal.