India Business Confidence Lowest Since January

Financial Position Weakest Since October 2013

The MNI India Business Sentiment Survey for April showed that business confidence fell for the second consecutive month, albeit marginally, as firms' financial position deteriorated.

The MNI India Business Sentiment Indicator, a gauge of current sentiment among BSE-listed companies, fell to 62.4 in April from 62.7 in March. The decrease in sentiment this month was led by construction and service sector firms while sentiment among manufacturing companies increased.

Confidence was down 2.3% compared with the same month a year ago and now stands at the same level as the series average. More positively, sentiment is up from the recent trough seen in December which had left it at the lowest for more than a year and a half.

The Reserve Bank of India cut the key policy rate by 25 basis points during the survey period. While it hasn't impacted business sentiment yet, we expect to see some of its effect in next month's survey. Note though that monetary easing has tended to provide only a short-term boost to business confidence, and has failed to cause a sustained increase.

In line with April's rate cut, firms reported that they faced lower debt service costs and found credit more readily available. However, company balance sheets worsened as firms continued to feel the pressure of the high debt and low sales environment which has persisted for more than a year now.

The decline in overall business confidence between March and April came against a set of mixed results in the survey. Production was down, employment remained unchanged, while orders increased slightly on the month. The pace of inventory building picked up and firms expected stock levels to expand over the next three months given expectations of strong demand. Sentiment towards the rupee held steady, while companies faced lower inflationary pressures.

Commenting on the latest survey, Chief Economist of MNI Indicators Philip Uglow said, A second consecutive decline in the MNI India Business Sentiment Indicator is a reminder that all is not well for India's largest companies. While sentiment is up from the recent low in December, it is only running at the series average. Meanwhile other measures such as production and orders are running below average, while firms' financial position deteriorated further in April.

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