Indian firms in the manufacturing and services sectors have a comparatively more optimistic business outlook than many of their global counterparts, according to the latest S&P Global’s India Business Outlook. Conducted tri-annually in February, June, and October, this survey presents a global comparative perspective on output growth forecasts for the year ahead.
The survey showed an improvement in Indian business forecast’s net balance from +21% in February to +26% halfway through 2023, matching emerging market averages but trailing the global reading (+28%). The net balance is derived by subtracting the percentage of respondents expecting a decrease or deterioration in a variable over the next twelve months from the percentage expecting an improvement or increase.
Nevertheless, India emerged as one of only four countries to witness a rise in output prospects, while confidence dwindled in the remaining eight countries with comparable data, added the report.
In the comparison between sectors, Indian manufacturers displayed a sentiment close to a two-and-a-half-year high, surpassing that of service providers. Further, forecasts that demand conditions will remain favourable in the year ahead also boosted optimism towards business activity and capital expenditure among private sector companies in India during June.
Among the other key findings of the survey, non-staff cost inflation expectations of Indian firms dipped to their lowest in two years in June. Although input cost inflation pressures appear to be easing, the report highlighted an uptick in charge inflation or selling price expectations to the highest since February 2022. Manufacturers were particularly confident about their pricing power, marking the highest net balance increase since February 2021, the report added.
To be sure, higher selling prices bode well for the profitability of companies, but in the backdrop of headwinds to local and global demand, this could backfire on overall demand outlook. Note that the recently released trade data for June, continued to show muted growth trends. “With global commodity prices now normalizing imports may see further reduction in value terms. Even domestic demand may see some correction which will also keep the import bill muted. Exports, both services and merchandise have been impacted due to the weakness in global economic activity, which is likely to continue,” said a report by Bank of Baroda.
Sharing the cautious view, a report by JM Financial Institutional Securities Ltd said that two broad trends have been playing out globally which may have a profound impact on the Indian economy. “Firstly, global trade has been slowing down, as reflected in the sharper than expected decline in China’s exports even India’s trade has decelerated. Secondly, the weakness in Dollar index to levels not seen since April 2022 (99.6), would push up the commodity prices eventually increasing the import bill of commodity consuming economies,” said the report. The spike in crude oil due to production cuts and weak dollar would push up India’s import bill, it warned.
Amid these economic considerations, the potential threat of an El Nino year looms, which could result in lesser monsoon rains, thereby harming rural incomes and demand.