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The survey results do not bode well for capital expenditure in the coming quarter as firms will prefer not to spend on the assessment that utilization levels are unlikely to improve. Photo: Hindustan Times
The survey results do not bode well for capital expenditure in the coming quarter as firms will prefer not to spend on the assessment that utilization levels are unlikely to improve. Photo: Hindustan Times

Firms still pessimistic on business sentiment, shows RBI survey

72nd round of Industrial Outlook survey in Oct-Dec showed percentage of firms that expect an improvement in levels of capacity utilization has remained at 27.8%

Mumbai: A majority of Indian manufacturing companies remain pessimistic about an improvement in their capacity utilization and order books, and believe that business sentiment will continue to be depressed, with the cost of borrowings unlikely to come down for the rest of fiscal 2016, a survey by the Reserve Bank of India (RBI) showed.

The 72nd round of the Industrial Outlook survey conducted during the October-December quarter showed that the percentage of firms that expect an improvement in levels of capacity utilization has remained unchanged at 27.8%.

A majority expect capacity utilization to be unchanged and 8.7% feel that it will decrease in the remaining quarter, the survey showed.

This does not bode well for capital expenditure in the coming quarter as companies will prefer not to spend on the assessment that utilization levels are unlikely to improve.

The percentage of firms expecting a decrease in profit margin has increased slightly to 20.1% in the current survey, compared with 19.7% in the previous round. A majority of respondents, 61.8%, felt that profit margins will remain unchanged.

Corporate profit margins have been under pressure for more than a year now given the slowdown in demand and erosion of pricing power. A massive fall in global commodity prices has lowered earnings of companies in the steel, metals and mining sectors. High leverage levels and weakening of debt repayment capacity have also weakened balance sheets. Notwithstanding the recent turmoil in the overseas capital markets, more than 84% of firms surveyed felt that availability of offshore finance would remain unchanged and only 3.9% felt it would worsen during the January-March quarter.

Again, about 74% felt that availability of bank loans and borrowings from financial institutions domestically would remain unchanged. Further, the number of companies expecting a rise in the cost of borrowings has come down in the current survey. Only 15.9% felt that the cost of borrowings would go up, compared with 17.9% earlier.

There was a glimmer of hope among companies with regard to order books as 39.7% expected order books to increase in January-March, while only 10.6% felt that the order flow would ebb in the quarter.

Optimism on the employment outlook reduced marginally, with 78% companies expecting employment levels to remain unchanged and 6.7% expecting them to fall. In the previous instalment, 6.1% of respondents had forecast a worsening of employment levels. An overwhelming 72.2% of companies expect no change in salaries as well.

Mercer’s All Industries Total Remuneration Survey 2015 for India, released on Thursday, said companies are expected to increase base pay by 10.5% in 2016.

Overall business sentiment, as measured by the Business Expectation Index, showed a marginal improvement to 114.2 for January-March, from 113.4 in the previous quarter.

The survey elicited responses from 1,377 companies to get a sense of expectations about business sentiment, order books, profits and availability of finance, among other parameters.

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