As things stand at present, India Inc is feeling more confident and is willing to assume greater risks in pursuit of better rewards going forward. And, that confidence is being reflected in demand across various sectors.
A survey by the National Council of Applied Economic Research, or NCAER, showed that business sentiment in India was at the highest in over two years in the second quarter of the current financial year, as the second Covid-19 wave eased.
The NCAER Business Confidence Index increased by about 80 per cent to 117.4 in Q2FY22 from 65 in the year-ago quarter, while it jumped about 90 per cent on a quarter-on-quarter basis. The index was also up 13.8 per cent over the pre-pandemic period of the second quarter of 2019-20, when it stood at 103.1.
One major industry, in particular, is seeing buoyancy in sentiment.
A joint report by Knight Frank, FICCI and Naredco showed that sentiment in the real estate sector had turned optimistic and hit an all-time high during the July-September period. Furthermore, the outlook for the next six months also remains positive due to the rapid progress in vaccination and the recovery in the economy.
After a dismal score of 35 in Q1 of FY22, the current sentiment index score shot up to 63 in Q2 – the best ever recorded.
The Future Sentiment Index score rose to 72 in Q2 of FY22 from 56 in Q1. This was also the highest ever recorded score in the history of the index. A score above 50 indicates optimism, a score of 50 means neutral sentiment, and anything below 50 means pessimism in sentiment.
Why is this significant? Keep in mind that the real estate sector’s contribution to India's GDP stood at 7 per cent in 2019-20.
But, what are the conditions supporting the general optimism and the higher risk appetite?
According to Shubhada Rao, the founder of QuantEco Research, the business environment has improved in terms of policy enablers. Demand has bounced back because of increasing vaccination coverage and the rebound has meant that risk appetite is returning among businesses.
Boosted by the festive season, demand across various sectors is also up.
According to a recent report, just before the crucial Diwali shopping period, demand for premium consumer electronics and smartphones has outstripped supply. In fact, several popular models have vanished from the market.
Industry executives quoted in the report said the shortage was 15-30 per cent of potential demand.
Contact-intensive services like hotels and airlines are also showing signs of life.
Hospitality companies, for example, had a better-than-expected Dussehra weekend. And now, they are hoping to end the year on a positive note with brisk business expected during Christmas and the New Year.
Coming to the aviation sector, rapid vaccination and easing of restrictions have been fuelling month-on-month traffic growth.
And, led by higher demand, airfares on certain routes are 30-45 per cent higher during Diwali on a year-on-year basis.
However, the key question is, is this increase in India Inc's risk appetite and the improved business sentiment sustainable?
QuantEco’s Rao says demand will persist over the next few quarters. Businesses will look at growth in their top lines, and somewhat in bottom lines too. She says ‘somewhat’ in bottom lines because there has been a strong surge in input prices in the past couple of months.
All in all, things are looking up for India Inc. However, there are two factors that need to be carefully monitored going forward.
The first is how rocketing raw material costs impact companies’ margins.
And secondly, despite India recently achieving the milestone of one billion Covid vaccine doses, the pace of Covid-19 vaccination is slowing down in the country.
 "India Inc ready to take on greater risks as demand grows")
