India Inc cautiously optimistic about various aspects of business: Markit

Business outlook survey shows Indian companies' confidence in February grew at the slowest pace in a year

Companies in India do not seem to be very optimistic about production growth in various sectors over the next year. According to a survey conducted in February, their confidence has grown at the lowest pace in a year.

The Business Outlook survey, conducted by global financial information provider Markit, uses net balances to indicate the degree of future optimism or pessimism. These net balances vary from -100 to 100, with the zero value signalling a neutral outlook for the next 12 months. A value above zero indicates optimism among companies over the outlook, while one below zero implies pessimism. 

The net balance figure is calculated by deducting the percentage of survey respondents expecting a decrease in a variable over the next 12 months from the percentage expecting an improvement. 

The net balance in February, according to the survey, stood at 26 per cent for overall output in the case of India; that was the lowest level in a year and below both the BRIC and global averages, Markit said in a statement.

Weaker degrees of sentiment have been recorded across manufacturing and services, with the respective net balances in these sectors standing at 24 per cent and 28 per cent in February.

Response from manufacturers indicates there is a positive sentiment around stronger demand, improved productivity and a planned increase in research & development expenditure. 

The optimism in the service sector is linked by panellists to increased inbound tourism, low petrol prices and sustained demand growth. There, however, are concerns from companies operating in both these sectors over competitive pressures, power outages and a shortage of skilled manpower.

At 30 per cent in February, the composite net balance for new business was down from 35 per cent in the previous outlook period. Markit conducts this survey in June, October and February every year. 

Across the manufacturing sector, incoming new work might increase at the weakest pace in a year, with the net balance at 28 per cent. Similarly, service providers anticipate the weakest rise in new businesses since February 2014.

Down from 37 per cent in October 2014 to 28 per cent in February, the net balance for business revenues indicates a softer degree of positive sentiment. Service providers were  more optimistic than manufacturers in the month.

Optimism towards profitability growth also softened in February, with the net balance standing at 30 per cent. That said, Indian private sector companies remain the most positive among those in the four BRIC economies.

Meanwhile, job creation is projected to continue over the course of next year. Though the net balance of 17 per cent for employment is the lowest in three outlook surveys, it remains above the global average (12 per cent). Services firms intend to hire additional workers at a much stronger rate than manufacturers.

February data indicate private-sector firms in India look set to increase their expenditure on capital in the year ahead. A net balance of 18 per cent of firms projects higher capital expenditure in the coming year, pointing to the weakest level of confidence since February 2014.