CII Business Outlook Survey

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CII Business Confidence index increases markedly in Apr-Jun 2016 as business expectations improve: CII Indian industry remained upbeat about the business environment in the first quarter of FY2016-17, as borne out by a significant pick-up in the CII Business Confidence Index (BCI) for Apr-Jun 2016. The CII-BCI increased to the level of 57.2, up from the level of 54.1 recorded in the previous quarter. The index has been steadily climbing since the last three quarters.
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  • 1. 2016 95th Business Outlook Survey June
  • 2. 95TH BUSINESS OUTLOOK SURVEY Confederation of Indian Industry 95TH BUSINESS OUTLOOK SURVEY (April-June 2016) HIGHLIGHTS The CII Business Confidence Index (CII- BCI) for April-June 2016 quarter rose to 57.2 from 54.1 in the previous quarter. Majority of the respondents expect the economy to grow between 7.0-8.0%. More than three quarter of the respondents (78 per cent) expect inflation to lie in the 4.0- 6.0% range. Nearly two thirds of the respondents (64 per cent) expect another cut in policy rates by the central bank. Majority of the respondents (43 per cent) attribute the recovery in corporate sector to increased government spending. Major share of the respondents (40 per cent) feel that a turnaround in the global economy will help jumpstart private investment cycle. Close to half of the respondents (47 per cent) expect capacity utilization to improve to 75- 100% level in Apr-Jun 2016 quarter. Majority of the firms expect no change in their domestic and international investment plans in Apr-Jun 2016. Close to two thirds of the respondents expect an improvement in sales and new orders in the Apr-Jun 2016 quarter. While an almost equal share of respondents expect the cost of raw materials and fuels to either increase or remain unchanged in Apr-Jun 2016, a significant majority anticipates an increase in wages and salaries and unchanged credit cost in the said quarter. Close to 50 per cent of the respondents anticipate an increase in after tax profits in Apr-Jun 2016. Majority of the respondents expect no significant change in external trade in Q1 FY17. Low domestic demand and fragile global economic recovery emerge as the top concerns this quarter. 1
  • 3. 95TH BUSINESS OUTLOOK SURVEY Confederation of Indian Industry BUSINESS CONFIDENCE INDEX The CII Business Confidence Index (CII- BCI) for April-June 2016 quarter rose to 57.2 as against the level of 54.1 recorded in the previous quarter. The BCI has been on an uptrend since the last two quarters owing to an improvement in both the Current Situation Index and the Expectation Index. The respondents in the survey were asked to provide a view on the performance of their firm, sector and the economy based on their perceptions for the previous and current quarter. The CII-BCI was then constructed as a weighted average of the Current Situations Index (CSI) and the Expectation Index (EI). A comparison of the CSI and EI indicated a sharper improvement in the EI in April-June 2016 quarter mainly owing to a stronger improvement in sentiment across all categories - economy, sector and company. QuarterlyBusinessConfidenceIndex(BCI) Index Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Business Confidence Index 51.2 45.7 54.9 49.9 53.7 57.4 56.2 56.4 54.4 53.4 53.9 54.1 57.2 Current Situation Index 48.7 46.1 51 47.3 50.1 51.4 53.5 53.5 52.2 49.3 50.7 50.7 52.3 Overall Economy 44.5 35.1 41.6 40.4 46.8 51.2 55 54.3 54.8 48.6 50.2 52.0 54.9 Own Activity Sector 46.1 43.9 47.7 44 46.8 49.2 49.4 52.7 48.3 45.4 48.8 47.6 48.1 Own Company 51.7 51.3 56.3 51.9 53.4 52.9 55.8 53.8 54.0 52.1 52.2 52.3 54.2 Expectation Index 52.5 45.4 56.8 51.2 55.5 60.5 57.6 57.8 55.4 55.5 55.5 55.9 59.7 Overall Economy 49.4 37 50.1 46.1 52 59.9 59.2 58.1 57.9 54.0 56.2 57.5 60.6 Own Activity Sector 50.6 43.6 54.3 49.1 54.6 59.1 54.5 57.5 51.8 53.3 55.0 52.2 58.0 Own Company 54.7 49.5 60.7 54.3 57.3 61.6 59.1 57.9 57.1 57.5 55.5 57.8 60.4 * The Survey is conducted on a quarterly basis since the 74th Business Outlook Survey GENERAL ECONOMIC PROSPECTS GDP GROWTH Majority of the respondents expect the economy to grow between 7.0-8.0%. A significant proportion of the respondents (61 per cent) expect the domestic economy to record 7.0- 8.0% growth in 2016-17, of which a major share (36 per cent) expect GDP growth to lie above 7.5% while 25 per cent feel that the economy may slow down from the previous financial year and grow between 7.0-7.5%. 2
  • 4. 95TH BUSINESS OUTLOOK SURVEY Confederation of Indian Industry <4% 5% 4.0-5.0% 39% 5.0-6.0% 39% 6.0-7.0% 14% >7.0 3% Expected CPI Inflation in 2016-17 (% of Respondents) INFLATION More than three quarter of the respondents (78 per cent) expect inflation to lie in the 4.0-6.0% range. Despite the recent uptick in inflationary pressures, a significant share of the respondents (78 per cent) expect the CPI inflation to hover around 5% in 2016-17, in line with the RBI’s expectation for the financial year. So far this year, price pressures have been on the rise due to increasing food and fuel costs and in expectation of the salary and wage increase of central government employees under the 7th Pay Commission. However, a normal monsoon may provide some relief from food inflation in the latter half of the year. 3 <5.5% 1% 5.5 - 6.0 % 7% 6.0 - 6.5% 11% 6.5 - 7.0% 14% 7.0 - 7.5% 25% 7.5-8.0% 36% >8.0 6% Expected GDP Growth Rate in 2016-17 (% of Respondents)
  • 5. 95TH BUSINESS OUTLOOK SURVEY Confederation of Indian Industry POLICY RATES Nearly two thirds of the respondents (64 per cent) expect another cut in policy rate by the central bank. Majority of the respondents (64 per cent) are optimistic about a cut in interest rate by the RBI in order to support the domestic economy while the global environment continues to remain challenging. The remaining 36 per cent of the respondents feel that the central bank will adopt a cautious approach and may not engage in any further rate cuts in 2016-17. CORPORATE RECOVERY Large proportion of the respondents (43 per cent) attribute the recovery in corporate sector to increased government spending. A major share of the respondents (43 per cent) feel that the turnaround in corporate sector earnings in Q4 FY 2015-16 was mainly owing to the increased government spending. Closely enough 41 per cent of the respondents attribute this recovery to increased consumption demand (private consumption expenditure). 4 Rate cut likely in FY 2016-17 64% No more rate cuts this fiscal 36% Expectation of a cut in Policy rates by RBI (% of Respondents)
  • 6. 95TH BUSINESS OUTLOOK SURVEY Confederation of Indian Industry PRIVATE INVESTMENT CYCLE Major share of the respondents (40 per cent) feel that a turnaround in the global economy will help jumpstart private investment cycle. Despite the various attempts by the government, the investment cycle is yet to recover and had slowed down further in 2015-16. Private sector investment continues to crawl and stalled projects remain high in Q1 FY 2016-17, as companies continue to postpone new investments on global economic uncertainty, unforthcoming demand, lack of regulatory clearances and inadequate supply of inputs. In this context, a majority of the respondents (40 per cent) feel that a recovery in the global economy would be helpful in kick starting the private investment cycle. Additionally, a big share of the respondents (37 per cent) feel that an upturn in the consumption cycle can also help in boosting private investment. GENERAL BUSINESS PROSPECTS 5 Decline in interest rates 17% Turnaround in global economy 40% Consumptio n cycle upturn 37% Any other 6% Ways to jumpstart the Private Investment cycle (% of Respondents) Increased government spending 43% Increased Private consumption expenditure 41% Any other 16% Factors responsible for Corporate turnaround (% of Respondents)
  • 7. 95TH BUSINESS OUTLOOK SURVEY Confederation of Indian Industry CAPACITY UTILISATION Close to half of the respondents (47 per cent) expect capacity utilization to improve to 75-100% level in Apr-Jun 2016 quarter. Largest share of the respondents (47 per cent) expect that capacity utilization would stand in the range of 75-100% in Apr-Jun 2016 quarter as compared to 32 per cent of the respondents who witnessed the same in the previous quarter (Jan-Mar 2016). The expectation of an improvement in capacity utilization in the Apr-Jun 2016 quarter comes despite the fact that a major share of the respondents (39 per cent) recorded the actual level of capacity utilization in the 50-75% level in Jan-Mar 2016. INVESTMENT PLANS Majority of the firms expect no change in their domestic and international investment plans in Apr- Jun 2016. Half of the firms expect to maintain status quo on their plans about investing in the domestic economy in Apr-Jun 2016 quarter. On the international front as well, a significant proportion of firms (60.5 per cent) expect to keep their investment plans unchanged in Apr-Jun quarter. Firms are keeping investment plans on hold despite the expectation of an improvement in sales and new orders in the Apr-Jun 2016 quarter owing to the existing excess capacity in the economy 24 39 32 5 11 37 47 5 Below 50% 50-75% 75-100% > 100 % Capacity Utilisation ( % of Respondents) Actual (Jan-Mar 2016) Expected (Apr-Jun 2016) Investment Plans for Apr-Jun 2016 (% of Respondents) A 2014 7.7 42.7 49.7 14.9 24.6 60.5 Decline Increase No change Decline Increase No change Domestic Investments International Investments 6
  • 8. 95TH BUSINESS OUTLOOK SURVEY Confederation of Indian Industry OVERALL TRENDS OVERALL SALES & NEW ORDERS Close to two thirds of the respondents expect an improvement in sales and new orders in the Apr-Jun 2016 quarter. Firms seem to be upbeat about their sales and new order projections for the Apr-Jun 2016 quarter with 61 per cent of the respondents expecting an increase in sales, while only 42% of the respondents experienced the same in the previous quarter. On similar lines, nearly two thirds of the respondents (65 per cent) anticipate an increase in new orders in the Apr-Jun quarter as compared to 40 per cent who witnessed the same in the preceding quarter. Expectations of increase in sales and new orders this quarter have been based on a majority of respondents witnessing the uptrend in the same in Jan-Mar 2016 quarter. EXPENDITURE 20 42 38 18 40 41 8 61 31 12 65 23 Decline Increase No change Decline Increase No change Sales Count of New Orders Actual (Jan-Mar 2016) Expected (Apr-Jun 2016) 7 Overall Sales & New orders (% of Respondents)
  • 9. 95TH BUSINESS OUTLOOK SURVEY Confederation of Indian Industry While an almost equal share of respondents expect the cost of raw materials and fuel to either increase or remain unchanged in Apr-Jun 2016, a significant majority anticipates an increase in wages and salaries and unchanged credit cost in the said quarter. The recent increase in global commodity prices seems to have made the respondents unsure about their expectations of raw material and fuel costs in Apr-Jun 2016 quarter. Around 47 per cent of the respondents expect the raw material cost to remain unchanged in Apr-Jun 2016 and an almost equal share of respondents (46 per cent) expect their cost the increase. Similarly, about 48 per cent of the respondents anticipate status quo on fuel costs, however an equally large proportion of respondents (46 per cent) expect an increase in the same. Nonetheless, there is a clear majority of respondents who feel that credit cost will remain unchanged (60.3 per cent) while wages and salaries may increase (63 per cent) in Apr-Jun 2016. PROFITS AFTER TAX Close to 50 per cent of the respondents anticipate an increase in after tax profits in Apr-Jun 2016. Profit expectations have improved significantly for the Apr-Jun quarter with a majority of the respondents (48.7) expecting an increase in profits after tax as compared to 29.2 per cent who witnessed the same in the previous quarter. The respondents seem upbeat about their profit expectation for Apr-Jun 2016 quarter despite the fact that a large share of respondents (36.9 per cent) experienced a decline in after tax profits in the previous quarter. 11.8 7.1 4.5 7.0 1.9 3.4 6.1 6.4 41.4 46.1 47.4 45.5 62.6 63.0 43.2 33.3 46.7 46.8 48.1 47.6 35.5 33.6 50.7 60.3 Actual (Jan- Mar 2016) Expected (Apr-Jun 2016) Actual (Jan- Mar 2016) Expected (Apr-Jun 2016) Actual (Jan- Mar 2016) Expected (Apr-Jun 2016) Actual (Jan- Mar 2016) Expected (Apr-Jun 2016) Total Raw Material Cost Electricity and Fuel Cost Wages and Salaries Cost of Credit Decline Increase No change Input Costs (% of Respondents) Profits after Tax (% of Respondents)
  • 10. 95TH BUSINESS OUTLOOK SURVEY Confederation of Indian Industry EXPORT AND IMPORT TRENDS Majority of the respondents expect no significant change in external trade in Q1 FY17. Major share of the respondents expect status quo on the external trade situation. More than half the respondents expect no change in their export orders in Apr-Jun 2016 while nearly two thirds of the respondents (63.9 per cent) anticipate the same for their import orders. However, there has been an improvement in the proportion of respondents anticipating an increase in external trade versus those who actually witnessed the same in the previous quarter. BUSINESS CONCERNS Low domestic demand and fragile global economic recovery emerge as the top concerns this quarter. 36.9 29.2 33.9 18.6 48.7 32.7 Decline Increase No change Actual (Jan-Mar 2016) Expected (Apr-Jun 2016) 18.9 27.3 53.8 16.0 20.8 63.2 7.4 41.3 51.2 9.2 26.9 63.9 Decline Increase No change Decline Increase No change Exports Imports Actual (Jan-Mar 2016) Expected (Apr-Jun 2016) Exports and Imports (% of Respondents) Top-most Concern (% of Respondents) 98
  • 11. 95TH BUSINESS OUTLOOK SURVEY Confederation of Indian Industry COVERAGE & METHODOLOGY CII’s 95th Business Outlook Survey is based on sample survey of firms covering all industry sectors, including micro, small, medium and large enterprises from different regions. The survey also enumerated responses across industry groups both in public and private sectors engaged in manufacturing and services sector. The survey was conducted from April-June 2016, covering more than 200 firms of varying sizes. Majority of the respondents (44 per cent) belonged to small-scale and micro firms, while 42 per cent were from large-scale firms and about 14 per cent were from medium-scale firms. Sectoral break up shows that 62 per cent of the respondents were from manufacturing sector while 32 per cent were from services sector and 6 per cent from primary sector, respectively. CII-BCI is calculated as a weighted average of the Current Situation Index (CSI) and the Expectation Index (EI), with greater weight given to EI as compared to CSI. These indices are based on questions pertaining to performance of the economy and respondent’s firm. Respondents are asked to rate the current and expected performance on a scale of 0 to 100. A score above 50 indicates positive confidence while a score above 75 would indicate strong positive confidence. On the contrary, a score of less than 50 indicates a weak confidence index. 35 25 24 13 3 Low domestic demand Fragile global economic recovery Lack of political consensus on economic reforms High borrowing cost Upward risk to food inflation 10
  • 12. 95TH BUSINESS OUTLOOK SURVEY Confederation of Indian Industry Reach us via our Membership Helpline: 00-91-11-435046244/ 00-91-99104 46244 CII Helpline Toll free No: 1800-103-1244 The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the development of India, partnering industry, Government, and civil society, through advisory and consultative processes. CII is a non-government, not-for-profit, industry-led and industry-managed organization, playing a proactive role in India's development process. Founded in 1905, India's premier business association has over 7200 members, from the private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 100,000 enterprises from around 242 national and regional sectoral industry bodies. CII charts change by working closely with Government on policy issues, interfacing with thought leaders, and enhancing efficiency, competitiveness and business opportunities for industry through a range of specialized services and strategic global linkages. It also provides a platform for consensus-building and networking on key issues. Extending its agenda beyond business, CII assists industry to identify and execute corporate citizenship programmes. Partnerships with civil society organizations carry forward corporate initiatives for integrated and inclusive development across diverse domains including affirmative action, healthcare, education, livelihood, diversity management, skill development, empowerment of women, and water, to name a few. The CII theme of ‘Accelerating Growth, Creating Employment’ for 2014-15 aims to strengthen a growth process that meets the aspirations of today’s India. During the year, CII will specially focus on economic growth, education, skill development, manufacturing, investments, ease of doing business, export competitiveness, legal and regulatory architecture, labour law reforms and entrepreneurship as growth enablers. With 64 offices, including 9 Centres of Excellence, in India, and 7 overseas offices in Australia, China, Egypt, France, Singapore, UK, and USA, as well as institutional partnerships with 312 counterpart organizations in 106 countries, CII serves as a reference point for Indian industry and the international business community. Confederation of Indian Industry The Mantosh Sondhi Centre 23, Institutional Area, Lodi Road, New Delhi – 110 003 (India) T: 91 11 45771000 / 24629994-7 • F: 91 11 24626149 E: info@cii.in • W: www.cii.in Follow us on : facebook.com/followcii twitter.com/followcii www.mycii.in 11 0
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