Faced with persistent inflation, global uncertainty and higher input costs, Indian companies expect a slowdown in overall economic activity, which might hit their profitability in the second quarter.
According to various business expectation surveys, apart from persistent inflation, global uncertainty, higher input costs, rising interest rates and the expectation of lower demand for finished goods are other factors affecting business sentiments of Indian companies apart.
Companies fear their profit margins could be hit, in the second quarter owing to the rising cost of finance and raw materials. “Overall, lower business optimism is seen in cement, textiles, basic metals, electrical machinery, transport equipment and fertiliser industries,” the Reserve Bank of India (RBI) said in the quarterly macroeconomic and monetary developments review.
According to the Industrial Outlook Survey, which is based on a sample of 1,504 companies, the Indian manufacturing sector has moderated its view on demand conditions, since net responses on production, order books, capacity utilisation, and exports and imports showed low optimism for the first quarter. In the second quarter, however, an improvement was visible, RBI said.
The seasonally-adjusted purchasing managers' index declined to its nine-month low in June, as sequential growth in output and new orders decelerated further and rising input and borrowing costs exert further pressure on growth. A professional forecasters' survey also showed a downward revision in the growth rate for 2011-12, compared to the previous survey.
“While the growth forecast for the agriculture sector was revised upwards, the forecast for industrial growth and the growth of the services sector was revised downwards. Annual average inflation for 2011-12, as measured by the wholesale price index, was also revised upwards,” RBI said.
While the World Bank has revised the GDP outlook downwards from the high of 9.0 per cent to 8.2 per cent, most of the other international as well as domestic agencies have maintained their earlier forecasts, and OECD has revised it upwards.
