Ficci business-confidence-survey

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Published on February 19, 2014

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FICCI - Business Confidence Survey
September 2013

Business Confidence Survey September 2013

Business Confidence Survey Survey Highlights The results of latest round of FICCI’s Business Confidence Survey conducted reports significant moderation in the performance of the companies vis-à-vis last two quarters. With regard to the current overall economic situation relative to last six months, a majority 65% of the respondents cited a ‘moderately to substantially’ worse performance. Further, expectation of the participants with regard to near term outlook was not buoyant. Survey results pertaining to operational parameters were disappointing too. The near term outlook of respondents with regard to sales, profits and investments remained subdued. The outlook with regard to exports and employment was muted as well. The business sentiment has been hit adversely and investment prospects don’t seem very promising. A sense of apprehension continues to grip members of India Inc. The value of Overall Business Confidence Index declined to 49.0 in the current survey round. The corresponding figure in last survey was 57.4 and 51.8 a year back. This is the lowest in about 17 quarters and is somewhat reminiscent of the situation in 2008-09. Weak demand which was reported to be a key issue constraining growth in the last survey by members of India Inc persists to be a bothering factor. Also a substantial increase was noted in the proportion of respondents citing availability and cost of credit as concerns. In the present survey 38% of the respondents said that availability of credit is an issue, this is almost double the percentage of participants citing likewise in the last survey. Also, high cost of credit was reported to be a concern by 72% of the participating companies. The corresponding number in previous survey round was 57%. The present average interest rate being paid by companies with a turnover of less than 500 crore on working capital loan was reported at 13.40%, while on term loan the rate was 12.48%. For companies with a turnover more than 500 crore, the average interest rate being paid on working capital loan was 11.41% and on term loan was 11.52%. Further, respondents indicated that they would be comfortable paying an average interest rate of 9.4% on working capital loan and 8.9% on term loan. The participants were also asked to suggest measures to revive flagging industrial growth. A good number of respondents felt that improving basic infrastructure with emphasis on quality has to be ensured. Investment in infra projects that are stalled has to be expedited. Also, it was unanimously reported that simplification of procedures and policies in commencing and conducting businesses will enable better confidence. Implementation of Goods and Services Tax and cut in interest rate by the RBI were given as other suggestions. Economic Affairs and Research Division Page 2

Business Confidence Survey Survey Profile The current survey round drew responses from companies with a wide sectoral and geographical spread. The survey drew responses from about 200 companies with a turnover ranging from 90 lakh to 1.35 lakh crore. The participating companies belonged to a varied array of sectors such as textiles, cement, financial services, hospitality, chemicals, metal and metal products, automobiles, FMCG, electrical equipment and machinery, paper and paper products. The survey was conducted during July 2013 and August 2013 and brings out expectations of the corporate members for the period July 2013 to December 2013. Sectoral Distribution of Participating Companies 25% 75% Manufacturing Services Turnover in Rs crore Number of Employees 39% 43% 57% Less than 500 Over 500 Economic Affairs and Research Division 61% less than 250 More than 250 Page 3

Business Confidence Survey Detailed Survey Findings Performance at Economy, Industry and Firm Level The results for the latest round of FICCI’s Business Confidence Survey reports significant moderation in the performance of the companies vis-à-vis last two quarters. The expectations of the participants also seem to have taken a beating. With regard to the current overall economic situation relative to the last six months, only 14% of the respondents cited a ‘moderately to substantially’ better performance. This was the fourth consecutive quarter of decline. The proportion of respondents reporting likewise in the previous round was 36%. A majority 65% of the participants indicated that situation is ‘moderately to substantially worse’ vis-à-vis last two quarters. A similar view was shared at the industry and firm level. At the industry level, about of half of the participating companies said that the situation has worsened vis-à-vis last two quarters. At the firm level about 29% participants reported likewise. This trend is further corroborated by the recently released macro data. The Q1 FY14 GDP numbers reported a growth of 4.4%, which is the lowest in almost four years. The manufacturing sector growth and investment numbers continue to languish. Prospects over next two quarters Prospects Net for the Response next six months Expected Economic Worse Situation Expected Industry Situation Expected Firm Level Situation Q1 FY14 Q4 FY13 Q3 FY13 Q2 FY13 -8 32 42 32 Worse -6 34 55 44 Worse 27 46 56 51 Note: Net responses are measured as the differential between the companies reporting positive and negative responses. Responses indicating status quo are not reckoned. Amidst this situation the near term outlook of members of India Inc seems to have a taken a severe hit as well. The proportion of participants citing worsening over July and December 2013 witnessed an increase at all the three levels- economy, industry and firm level. Economic Affairs and Research Division Page 4

Business Confidence Survey Nevertheless, results indicate that expectation of moderation over the coming six months was more pronounced at the economy and industry level. At the economy level, 21% of the respondents expected an improvement in the overall condition over the next two quarters, relative to 49% participants reporting likewise in the last survey round. Further, about 50% of the participants expected no change in the overall economic situation. At the industry level also 21% of the respondents cited an improvement in near term (vis-a-vis 33% stating likewise in the last survey round), while about half of the participants anticipated a worsening. At the firm level, 42% of the respondents indicated that they feel the performance would improve going ahead, while 15% said that they expect the situation to deteriorate. Operational Parameters Survey results pertaining to the operational parameters are also not so positive. The outlook of the respondents with regard to sales, profits and investments remained subdued for next two quarters. Further, a majority of the participants cited no change in the selling prices in near term. In addition, the outlook with regard to exports and employment was muted as well. Sales-Net Respondents 100 80 60 40 20 -40 Q1 (2004-05) Q4 (2004-05) Q3 (2005-06) Q2 (2006-07) Q1 (2007-08) Q4 (2007-08) Q3 (2008-09) Q2 (2009-10) Q1 (2010-11) Q4 (2010-11) Q3 (2011-12) Q2 (2012-13) Q1 (2013-14) 0 -20 The outlook of the participating companies with regard to near term sales prospects was not very sanguine. A little over 50% of the respondents anticipated no change in the sales volume over the next two quarters. The corresponding figure in the last quarter was 40% and a year back was 38%. Profits - Net Respondents Economic Affairs and Research Division 80 60 40 20 Page 5 Q1 (2013-14) Q3 (2012-13) Q1 (2012-13) Q3 (2011-12)* Q3 (2010-11) Q1 (2011-12) Q3 (2009-10) Q1 (2010-11) Q1 (2009-10) Q3 (2008-09) Q3 (2007-08) Q1 (2008-09) Q1 (2007-08) Q3 (2006-07) Q3 (2005-06) -60 Q1 (2006-07) -40 Q3 (2004-05) -20 Q1 (2005-06) 0 Q1 (2004-05) With the anticipated decline in sales volume, the expectation of the participating companies with regard to profits has clearly taken a beating. About 40% respondents said that they expect profits to be lower in near term. In fact, another 43% participants said that they don’t see any change in profit levels over the next six months. Only 17% companies expected profits to be higher going ahead.

Business Confidence Survey 80 60 40 20 -20 -40 -60 Q1 (2004-05) Q3 (2004-05) Q1 (2005-06) Q3 (2005-06) Q1 (2006-07) Q3 (2006-07) Q1 (2007-08) Q3 (2007-08) Q1 (2008-09) Q3 (2008-09) Q1 (2009-10) Q3 (2009-10) Q1 (2010-11) Q3 (2010-11) Q1 (2011-12) Q3 (2011-12) Q1 (2012-13) Q3 (2012-13) Q1 (2013-14) 0 Though the latest export data for the month of July 2013 indicated some recovery and the imports did witness a fall with government imposing curbs on gold, however the outlook for exports for the next six months doesn’t look very optimistic. The global situation continues to be fragile. 56% of the participants said that they see no change in the export volume over the next two quarters. Further, 23% respondents indicated higher exports in near term, vis-avis 32% saying likewise in last round. Employment-Net Resondents 50 40 30 20 10 -20 -30 -40 Q1 (2004-05) Q3 (2004-05) Q1 (2005-06) Q3 (2005-06) Q1 (2006-07) Q3 (2006-07) Q1 (2007-08) Q3 (2007-08) Q1 (2008-09) Q3 (2008-09) Q1 (2009-10) Q3 (2009-10) Q1 (2010-11) Q3 (2010-11) Q1 (2011-12) Q3 (2011-12) Q1 (2012-13) Q3 (2012-13) Q1 (2013-14) 0 -10 Economic Affairs and Research Division The investment outlook of companies has deteriorated significantly and this is a major cause for concern. Around 51% of the participating companies in the survey said that they see no change in investment levels over the next two quarters. Further though about 21% respondents (vis-a-vis 37% in last survey round) indicated that they would undertake new investments in near term, about 29% (vis-a-vis 17% in last survey round) anticipated a decline. Exports - Net Respondents 80 60 40 20 0 -20 -40 -60 Q1 (2004-05) Q3 (2004-05) Q1 (2005-06) Q3 (2005-06) Q1 (2006-07) Q3 (2006-07) Q1 (2007-08) Q3 (2007-08) Q1 (2008-09) Q3 (2008-09) Q1 (2009-10) Q3 (2009-10) Q1 (2010-11) Q3 (2010-11) Q1 (2011-12) Q3 (2011-12)* Q1 (2012-13) Q3 (2012-13) Q1 (2013-14) Investments-Net Respondents Amidst this scenario, the employment outlook of the companies doesn’t seem very promising in the coming six months. Only 12% of the respondents said that they foresee hiring more people in the next two quarters. The corresponding number in the last survey round was 20%. Further, 67% participating companies said that they don’t intend any further recruitments over the next six months. Page 6

Business Confidence Survey Overall Business Confidence Survey The current condition index dropped to 43.6 in Q1 FY14 from 50.7 in Q4 FY13. A year back the corresponding figure was 45.7. The fall in the value of current condition index, which captures the performance at the economy, industry and firm level, clearly indicates that situation has deteriorated noticeably. The Expectation Index stood at 51.7 in Q1 FY14, vis-a-vis 60.8 in Q4 FY13 and 54.8 in Q1 FY13. As a result, the value of Overall Business Confidence Index declined to 49.0 in Q1 FY14. The corresponding figure in Q4 FY13 was 57.4 and 51.8 a year back. This is the lowest in about 18 quarters and is somewhat reminiscent of the situation in 2008-09. The business sentiment has been adversely affected and the investment scenario doesn’t seem very promising. Though the present economic situation continues to remain weak, with no definite signs of recovery, it is extremely important that we continue with our efforts to kick start the capex cycle. The sharp swing in Rupee value has added to this already uncertain environment and has raised fresh concerns over sustainability of our current account deficit. The government has been in caution mode and announced measures which have had some positive impact on the Rupee value. Economic Affairs and Research Division Page 7

Business Confidence Survey Constraining Factors Weak demand was said to be a key issue constraining growth in last survey and was once again reported to be a bothering factor. Also a substantial increase was noted in the proportion of respondents citing availability and cost of credit as concerns. Factor Constraining Growth 70 73 75 72 57 22 35 29 81 69 66 59 63 38 28 19 Rising cost of raw material Rising manpower costs Inadequate infrastructure Cost of credit Availability of credit Threat of imports Excess production capacity Q1 FY14 Weak Demand 90 80 70 60 50 40 30 20 10 0 Q4 FY13 In the present survey round we also asked participants to indicate if they are facing any labor problems related to cost of labor and skilled labor. 71% of the participants affirmed they are having labor issues pertaining to cost and skills. While 75% said that rising costs of manpower was an issue, only about 39% said that availability of skilled labor was a problem. Weak Demand Though there was a marginal decline in the proportion of respondents citing weak demand to be a worrying factor, yet a majority 70% reported that it is still a concern. The participating companies reported that their current order book position vis-a-vis last six months has taken a hit and the near term expectations weren’t too robust either. Expected Order book position over next six months Current Order Book position vis-a-vis last six months 60 40 40 22 53 46 50 48 50 30 60 40 38 28 24 44 36 30 20 20 10 10 0 Better Same Present Survey Worse Last Survey Economic Affairs and Research Division 12 11 0 Better Same Present Survey Worse Last Survey Page 8

Business Confidence Survey In the current survey round, only about 22% of the participating companies said that there current order book position is better vis-a-vis last six months. Further, 38% said that their order book position is worse relative to the past two quarters. This was an increase of almost 10 percentage points compared to 28% participants reporting likewise in the last survey round. With regard to the expectations over the next two quarters, 36% participants felt that their order book position would be better, vis-a-vis 46% saying likewise in the previous survey round. A little more than 50% of the participants expected no change in the order book position in near term. Credit Availability and Costs Results of the latest survey round once again indicates availability and cost of credit have emerged as problem areas for companies. In the present survey 38% of the respondents said that availability of credit is an issue, this is almost double the percentage of participants citing likewise in previous survey round. Also, high cost of credit was reported to be a concern by 72% of the participating companies. The corresponding number in the last survey round was 57%. Recent measures announced by RBI to tame Rupee has affected the liquidity situation and companies are finding it increasingly difficult to borrow funds. Also, the lending rates continue to remain high despite the Central Bank cutting policy rates beginning of the year. Average interest rate charged by the banks on working capital and term loan Working Capita Loan Term Loan At present Six One year At present Six One year months back months back back back Turnover 13.40 13.19 13.19 12.48 11.23 11.16 up to 500 cr Turnover 11.41 11.06 11.12 11.52 11.48 11.39 over over 500 cr The above table clearly indicates that the average interest being charged by banks has in fact gone up marginally over past one year. The companies were also asked to indicate the interest rate they would be comfortable paying given the current situation. It was indicated that an average interest rate of 9.4% on working capital loan and 8.9% on term loan would be ideal. Measures suggested for reviving industrial growth Improving basic infrastructure has to be the focus and emphasis should be laid on quality. Investment in infra projects that are stalled has to be expedited. The Cabinet Committee on Economic Affairs and Research Division Page 9

Business Confidence Survey Investments (CCI) has been speaking on such clearances and the process of actual implementation will have to be accelerated. Non-availability of uninterrupted quality power supply was reported to be a concern by a large number of respondents. There is an urgent need to undertake energy reforms. The country is energy and electricity deficient and thus requires a road map of achieving energy security with cost affordability. Simplification of procedures and policies in commencing and conducting the business will enable better confidence. There is an urgent need to improve regulatory framework for businesses. Government should resolve the deadlock in iron ore sector and the coal sector. Implement Goods and Services Tax at earliest. The Goods and Services Tax can be a game changer for the industry and exporters and is expected to add 2 percentage points to the GDP. Kick start demand which can be supplemented by monetary policy easing. Fiscal deficit has to be controlled facilitating better fund flow management. We should immediately look at ways of reducing subsidies. Impact of Rupee Depreciation The respondents indicated that sharp fall in the rupee value has affected their input costs, which in turn has lowered their profitability. Both capital and operation costs have been impacted. The participating companies said that they are in a fix as they cannot even pass the cost to the consumers. Economic Affairs and Research Division Page 10

Business Confidence Survey Annexure - Survey at a Glance FICCI BCS Q3 2011-12 1a to FICCI BCS Q3 201213 FICCI BCS Q4 201213 FICCI BCS Q1 2013-14 44 45 36 14 43 19 32 34 32 21 38 19 74 24 20 32 65 49 22 48 52 49 21 38 44 36 38 34 50 25 13 34 16 10 17 29 36 47 26 32 34 33 21 35 34 33 44 38 31 29 29 19 41 24 28 35 50 46 55 41 52 58 46 26 32 30 37 40 38 42 42 to Same / No change Moderately to Substantially worse Expectations for industry performance in the next six months Same / No change 7 37 Moderately to Substantially worse Current industry performance vis-à-vis the last six months Moderately Substantially better 38 to Same / No change Moderately Substantially better 34 39 Moderately to Substantially worse Expectations for overall economic conditions for the next six months Moderately Substantially better 2b FICCI BCS Q2 201213 29 Same / No change 2a FICCI BCS Q1 2012-13 Current overall economic conditions vis-à-vis the last six months Moderately Substantially better 1b FICCI BCS Q4 2011-12 to Economic Affairs and Research Division Page 11

Business Confidence Survey Moderately to Substantially worse Current firm level performance vis-à-vis the last six months 22 22 8 3 12 32 48 47 36 46 38 32 27 33 30 28 38 41 47 44 19 23 36 17 21 21 29 59 56 46 59 59 58 42 25 34 35 33 38 30 43 17 11 19 8 3 12 15 Current Conditions Index 55.0 57.4 45.7 57.9 54.0 50.7 43.6 Expectations Index 3a 15 59.0 61.7 54.8 64.6 65.0 60.8 51.7 58.0 60.3 51.8 62.4 61.2 57.4 49.0 45 55 57 43 73 27 71 29 75 25 73 27 70 30 27 73 17 83 16 84 39 61 15 85 28 72 35 65 20 80 23 77 24 76 33 67 29 71 19 81 38 62 50 42 47 53 60 40 58 42 52 48 57 43 72 28 81 19 79 21 62 38 50 50 66 34 66 34 69 31 Moderately Substantially better to Same / No change Moderately Substantially worse 3b to Expectations regarding firm level performance in the next six months Moderately Substantially better to Same / No change 4 5 6 Moderately Substantially worse Confidence Indices to Overall Business Confidence Index Problem areas Weak Demand Yes No Threat of imports Yes No Constrained availability of credit Yes No High cost of credit Yes No Rising raw material prices Yes No Present capacity Economic Affairs and Research Division Page 12

Business Confidence Survey 7 utilization Less than 25% Between 25% and 50% Between 50% and 75% More than 75% Prospects for the next six months Investments Much higher Higher Same / No change Lower Sales Much higher Higher Same / No change Lower Selling price Much higher Higher Same / No change Lower Profit Much higher Higher Same / No change Lower Exports Much higher Higher Same / No change Lower Employment Much higher Higher Same / No change Lower 2 8 31 60 7 13 38 42 0 21 46 33 8 4 50 38 4 11 48 37 3 13 37 47 8 12 39 41 6 39 39 16 7 34 48 11 4 29 42 25 9 36 32 23 0 21 46 33 7 30 47 17 2 19 51 29 6 53 31 10 13 53 21 13 0 50 38 12 13 30 35 22 7 41 44 7 1 45 40 15 2 37 53 8 0 29 57 14 0 26 52 22 4 16 72 8 0 17 43 39 0 20 64 16 1 19 56 24 0 11 67 21 1 27 43 30 2 36 29 33 0 32 36 32 0 35 30 35 0 35 35 31 1 25 38 36 0 17 43 40 2 40 42 17 8 30 46 16 5 33 43 19 6 22 50 22 4 13 52 30 3 29 40 28 4 19 56 22 1 29 62 8 0 30 61 9 0 16 64 20 0 18 59 23 0 16 72 12 1 19 65 14 0 12 67 22 Economic Affairs and Research Division Page 13

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