The MNI India Business Sentiment Indicator, a gauge of current confidence among BSE-listed companies, rose to 62.3 in October offsetting last month's fall to 61.4. The rise in sentiment was observed across both manufacturing and construction companies, while sentiment among service sector companies fell for the fourth consecutive month.
Confidence has increased four times this year, each time following a rate cut by the RBI. While sentiment rose in October it was less than expected given the greater than forecast 50 basis point cut in rates, with respondents more concerned about the general malaise in the economy and subdued demand globally. Moreover, this month's result was even more disappointing given that this is a festival period when usually there is more business and purchase activity.
Panellists reported that weak global growth continued to hurt demand. Export Orders were 8.4% below the series average while New Orders were 13.1% down on the year. Production growth also moderated between September and October.
The decline in global commodity prices led to an easing in raw material costs for the fourth consecutive month in October. Some companies, however, raised their prices to increase their margins and also make up for previous cuts in selling prices.
While output and orders have eased, there were clear signs that the four rate cuts since the start of the year were starting to flow through in the form of cheaper and more plentiful credit. The cost of debt service has fallen dramatically since the start of the year and hit a record low this month and subsequently the availability of credit has improved.
Commenting on the latest survey, Chief Economist of MNI Indicators Philip Uglow said, The general sogginess in production and orders continued through to October with both now significantly down from levels a year ago. Of clear concern is the softness in export orders with India not immune to weakness in its key trading partners.
Monetary policy has been loosened considerably over the past year and firms are clearly starting to see the benefits of that coming through. This should help to underpin demand ahead, although for now there are few signs of a turnaround.
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