New Delhi: Indian firms expect earnings to dip in the next six months because of higher interest rates and are less confident about the economy as a result, according to a survey.
A majority of companies remained optimistic about the economy for the first half of the financial year starting in April, but the number of firms who expected gains fell sharply from last quarter, the survey by the Federation of Indian Chambers of Commerce and Industry (FICCI) found.
Expectations of higher sales fell from 78% to 68% compared with a survey done in the quarter that ended in March, the industry lobby group said.
Of the 418 companies surveyed in April, 50% expected higher profits in the next six months, compared to 52% in the January-March quarter survey, the fourth quarter of India’s financial year.
Overall, optimism about the economy in the next six months declined from 72% to 59% as firms anticipated lower consumer spending because of monetary tightening measures by the central bank to contain inflation, the survey said.
“As the package of anti-inflationary measures by the Reserve Bank of India (RBI) will impact consumer spending first, industries such as food processing, textiles, housing, construction and automobiles are apprehensive about a fall in demand and profits,” it said.
The central bank raised rates twice this year, by a quarter of a percentage point each time to 7.75% -- the highest level in more than four years -- to contain inflation.
The bank aims to curtail inflation from nearly 6.0% to 4.0-4.5% in the medium term.
The bank in April said the economy -- estimated to have grown by 9.2% in 2006-07 -- would slow to 8.5% this year because of the steps taken since late 2004 to prevent overheating.
The survey, however, reflected a positive outlook for exports, investments and employment.
More than half the respondents expected a surge in exports and investments.
The study said optimism was highest among cement, chemical and machinery firms which did not depend directly on consumer spending.
Greater investments were planned for textiles, rubber, paper and plastic industries, it said.