The business expectation index (BEI), which acts as a barometer of the overall health of the manufacturing sector, has gone up to 126.5 for the October-December 2010 quarter, its highest reading since the April-June 2007 quarter. The index was at 119 for the quarter ended September and at 82.6 for the quarter ended March 2009.
The BEI is based on the quarterly industrial outlook survey (IOS), on the weighted average of responses from different industries on nine selected performance parameters. The Reserve Bank of India has been conducting the IOS since 1998. The survey gives insight into the perception of public and private limited companies in manufacturing activities about their own performance and prospects.
The latest one covered about 3,000 non-financial public and private limited companies, mostly with paid-up capital above Rs 50 lakh, in the manufacturing sector. The field work for the survey was done during the two-month period ending August 2010.
The survey shows the manufacturing sector took further steps to recovery, pointing towards economic growth. The industry-wise break-up showed a majority of the industry groups had positive overall business sentiment in the quarter. Specifically, transport equipment, electrical machinery, pharmaceuticals & medicines and other machinery & apparatus are more optimistic than the others. Food products, cement, wood and wood products expect low business performance in the third quarter ended December.
The survey reveals 46 per cent of the companies reported constraints in attaining the normal production level during the October- December quarter, slightly lower as compared to the last survey round (49 per cent). The major industry groups for which over half the companies reported production constraints are cement, paper and paper products, textiles, food products, and rubber and plastics. On the other hand, only 35 per cent of those in pharmaceuticals and& medicines reported production constraints.
The good news has been that the sentiment on profit margin has improved, with 25.2 per cent of respondents expecting improvement, from 22.2 per cent in the preceding two quarters. The sentiments, however, are still in negative terrain, but the extent of pessimism has declined, compared to the preceding quarter. A diversified industry anticipates improvement in profit margin as compared to the other industry groups.
The survey reveals that the pressure on input cost has reduced marginally as compared to the preceding quarter. A size-wise analysis shows improvement across all size groups, but the bigger companies are more optimistic and they expect high order books, building of inventory and return of pricing power. Though the smaller companies (annual production less than Rs 100 crore) have improved their performance, their growth is at a lower rate as compared to bigger ones.