Manufacturers Expect Improvement In Production And Order Books In Q2FY21

Reserve Bank of India (RBI) has released the results of the 90th round of the Industrial Outlook Survey (IOS) conducted during April-June, 2020. The survey encapsulates qualitative assessment of the business climate by Indian manufacturing companies for Q1:2020-21 and their expectations for Q2:2020-21. In all, 802 companies responded in this round of the survey. Owing to uncertainty driven by the Covid-19 pandemic, an additional block was included in this round of the survey for assessing the outlook on key parameters for two quarters ahead as well as one year ahead.

Manufacturing companies assessed faltering of major demand indicators like production, order books and employment conditions in Q1:2020-21; the perception of external demand conditions was also pessimistic. Sentiment for overall financial situation was negative, largely driven by downfall in internal accruals. Cost pressures stemming from interest payments on borrowings and purchase of inputs were assessed to soften; salary expenses also eased. Respondents polled reduction in selling prices and plunge in profit margins. The Business Assessment Index (BAI)2 fell sharply to all-time low at 55.3 in Q1:2020-21 from 102.2 in the previous quarter.

Manufacturers expected improvements in production and order books in Q2:2020-21; the sentiments on job landscape and external demand, however, remained weak. Outlook on overall financial situation portrayed some optimism. Respondents tempered their expectations on selling prices on the back of lower cost burdens from inputs and salary outgo. Sentiments on profit margins remain highly negative during Q2:2020-21 also. The business expectations index (BEI) dipped into contraction zone and stood at 99.5 for Q2:2020-21.

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