Indian firms most downbeat among global peers on profitability outlook

Indian firms are among the most downbeat globally on profitability outlook, showed S&P Global's latest India Business Outlook survey. 

This is a tri-annual survey, which is conducted in February, June and October. In February, the net balance of companies predicting growth fell from +21% to +15%, the joint-lowest mark since October 2021. By comparison, the global and emerging market readings were at +16% and +20%, said the survey report. The net balance figure is calculated by deducting the percentage number of survey respondents expecting a deterioration/decrease in a variable over the next twelve months from the percentage number of survey respondents expecting an improvement/increase.

This weighed on the business confidence regarding the future output among Indian companies. For India, the metric gauging level of business optimism fell below the global and emerging market averages. Also, India was one of three nations to see a fall in confidence, alongside Brazil and Japan, with the other nine countries for which comparable data are available all registering an increase, said the survey report. Anecdotal evidence indicated that inflation concerns and competitive pressures were the main factors stymieing business confidence, said the survey report. Consequently, the prospects for capex and R&D weakened.

While cost inflation pressure has started to recede for many companies across sectors, price hikes have not been adequate enough. The confidence to raise prices meaningfully is missing. According to the survey, the outlook for output charges or selling prices was unchanged as several firms anticipate that competitive pressures would restrict pricing power.

Meanwhile, India's index of industrial production data for January showed that factory output rose 5.2% from 4.7% in December. While the production of capital goods surged after a sharp contraction in December, that of consumer goods was on a weaker footing. Given the prevailing macroeconomic conditions, the road ahead may not be smooth.

According to Thamashi De Silva, assistant India economist at Capital Economics Ltd, the outlook for India’s industrial sector will be unspectacular over the coming months. "The rise in policy rates is still feeding through into lending rates – as those rise, firms are likely to pull back on investment. And more generally, elevated inflation and higher rates will weigh on consumer demand," De Silva said in a report.