MNI India Business Sentiment Indicator: India Business Confidence Highest Since July 2015 - Firms Raise Production To Meet Higher Demand

Indian business sentiment rose for the second consecutive month in February as companies increased production on the back of rising orders.
 
The MNI India Business Sentiment Indicator, a gauge of current sentiment among BSE-listed companies, rose to 63.5 in February from 61.8 in January. The increase in sentiment was solely led by manufacturing firms where confidence was at a seven-month high. 
 
Although the indicator was 4.1% below the outturn of February 2015, sentiment surpassed the series average. Confidence has increased in both January and February, having risen only four times last year, following rate cuts by the RBI. The survey shows that although monetary easing provided short-term boosts to business confidence, it failed to provide a sustained increase last year. It was encouraging to see a pick-up in sentiment in most key parameters of the survey this month as well, in spite of no change in the key policy rate at the last monetary policy meeting on February 2.
 
More companies reported a rise in new orders and export orders, encouraging them to increase production. The growth in demand also boosted the labour market, with firms increasing their workforce following almost two years of nearly stable employment levels.
 
Given stronger demand, firms were more confident in raising their selling prices. The Input Prices Indicator remained broadly stable while Prices Charged rose above the 50 level for the first time since July 2015.
 
One of the negatives in this month’s survey was the impact of the rupee on business operations. Companies lamented that the weakness in the rupee was offsetting benefits of a decline in global commodity prices, especially crude oil. The indicator measuring the Effect of the Rupee Exchange Rate fell further into contraction to 48.4 from 49.2 in January, the lowest since June 2015.
 
Commenting on the latest survey, Chief Economist of MNI Indicators Philip Uglow said, “On the whole, the brighter tone of the February survey provides an early signal that the trend decline in sentiment since peaking in September 2014 may have run its course. Most key parameters of the survey including New Orders, Production and Employment showed strength.”
 
“On the costs side, though, companies were finding it hard to fully capitalise on the positives of lower commodity prices, with the decline in the rupee hurting profits. Growing inflationary expectations will in turn make the RBI’s path of inflation targeting more arduous.”