Hit by the ongoing economic slowdown, the sentiment of micro and small enterprises (MSEs) fell to a one-year low after the second quarter (July-September) of 2019-20, says a major quarterly survey.
According to the eighth edition of the CriSidEx survey, sentiment fell during Q2 to 106. It was 120 in Q1.
This represents a fall in sentiment for the third-straight quarter in a row. Developed jointly by ratings agency CRISIL & the Small Industries Development Bank of India (Sidbi), the survey maps business sentiment on a composite index of zero (extremely negative) to 200 (extremely positive).
Crucially, only 27 per cent of the manufacturers reported Q2 as being good for business. This is almost the same as Q1.
As a result, positive sentiment in the quarter was the lowest in the past five quarters.
Among manufacturers, more firms from metals & mining, auto-components, and engineering & capital goods reported a subdued quarter.
For manufacturing, the on-quarter drop was sharper in top line related parameters (volume and order book) than in margins. Among services providers, only 19 per cent of the firms reported a good Q2, against 28 per cent in Q1. This was again lower than the 38 per cent positive sentiment recorded in the last quarter of the previous financial year. Respondents from commercial services, construction & real estate, travel & hotels, and logistics were the most optimistic.
“The survey’s findings need to be viewed in the context of macroeconomic factors, such as production cuts by automobile manufacturers, which impacted utilisation of components. Decline in both volume and realisation in commodity-linked sectors such as steel, and a slowdown in consumption impacted gems & jewellery as well as hotels,” said Amish Mehta, chief operating officer (COO) at CRISIL.
Export-oriented MSEs performed better, with 21 per cent of them reporting an increase in order book compared with 15 per cent in the case of domestic peers. Among importers, share of respondents that saw higher procurement in July-September 2019 declined to 9 per cent from 13 per cent in the preceding quarter.
Production and capacity utilisation are expected to remain stable next quarter as 28 per cent of the manufacturing MSEs expect an increase in production. However, 65 per cent saw it unchanged and 7 per cent expected it to be lower.
On the other hand, hiring was muted as only 7 per cent of the MSEs reported addition to their employee base in Q2, compared with 16 per cent in the previous quarter.
At the same time, 87 per cent of firms reported the same employee count and 6 per cent reported reductions.
The survey pointed out that lenders have below-par outlook on the business situation.
In Q2, one out of 10 lenders surveyed saw an improvement in the overall business situation of MSEs. Four out of 10 rated it as satisfactory, and 5 out of 10 reported it as below satisfactory.