Indian companies more upbeat about profitability growth than EM peers

MUMBAI: Business confidence among Indian manufacturers and services providers showed further improvement in February, according to IHS Markit's quarterly Business Outlook survey. This tri-annual survey is conducted in February, June, and October.

As per the survey, published on 15 March, output expectations among Indian companies have reached their highest since late 2014. The key driver was the covid-19 vaccination campaign, which firms hope will lead to easing of restrictions and boost demand growth, said the survey report .

Also Read | The invisible hand in India’s stock market

Amid predictions of an improvement in demand conditions and pricing power, Indian companies foresee profitability growth in the coming 12 months. Furthermore, the level of positive sentiment strengthened to a one-year high and surpassed the emerging markets average, added the report.

Also, it should be noted that with input cost inflation continuing to tick higher, Indian companies intend to raise their selling prices over the coming 12 months, which could aid operating margins.

Commenting on the India Business Outlook survey data, Pollyanna De Lima, Economics Associate Director at IHS Markit, said, “Despite some concerns that raw material shortages could lead to higher input costs, non-staff cost inflation expectations were unchanged since last October. Staff cost inflation, on the other hand, looks set to intensify and a larger proportion of firms intend to hike their fees."

Interestingly, according to the latest global fund managers survey published by BofA Securities, a net 89% respondents expect global profits to improve in the next year, the highest ever since the survey began.

However, the same survey also pointed out that higher-than-expected inflation is the biggest tail risk for markets. Although the US Federal Reserve in its latest policy statement allayed those concerns, corporate earnings will be an indicator of the pressure input cost is putting on margins and whether companies have the ability to pass that on.

Meanwhile, the IHS Markit survey also showed that Indian private sector firms became more upbeat regarding capex growth, with a net balance of 26% of panellists foreseeing an increase. The overall level of positive sentiment improved to the highest since October 2014, amid strengthening confidence among goods producers, said the report. The IHS Markit Global Business Outlook survey showed that this is in-line with the global trend with most companies across countries renewing their capex plans.