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Business confidence in India wanes amid election uncertainty

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Staff Writer |
Asia   Firms are less optimistic than in June

Overall, companies in India remain upbeat towards growth prospects, with forecasts of new business expansion expected to boost output, profits and employment.

However, in most instances, firms are less optimistic than in June, with only the employment net balance rising in October.

The headline business activity net balance is at +18%, down from +20% in June and at its joint-lowest mark in over one-and-a-half years.

Moreover, sentiment in India is weaker than seen on average in emerging markets and globally.

Companies still foresee demand improvements and are planning to increase advertising to secure new work.

Some firms also mention merger opportunities and product development as reasons to be upbeat.

However, anecdotal evidence suggests a growing concern about input costs, particularly for fuel.

Other factors restricting confidence include the 2019 general election, competition, limited pricing power and expected currency fluctuations.

Although sentiment is broadly similar among goods producers and service providers, the former signal an uptick in confidence, while the latter are less optimistic than in June.

Notably, the net balance of services firms predicting activity growth is the lowest registered since June 2017.

A similar trend is noted for new business, with sentiment strengthening at manufacturers and weakening at services companies.

To accommodate for projected increases in new work, private sector firms in India are planning to expand operating capacities over the coming 12-month period.

Although hiring intentions have been revised higher, reaching the greatest mark seen in over three-and-ahalf years, sentiment is among the lowest seen globally.

Only in China and Spain lower net balances are recorded.

Spending on capital such as vehicles, premises, equipment and land are projected to increase in the year ahead.

That said, with both manufacturers and service providers revising lower their capex plans, the proportion of optimists minus pessimists at the composite level is down from June.

At the same time, the mood among manufacturers regarding research and development has darkened, with Indian producers the only pessimists globally.

Firms predict greater cost burdens in the year ahead to stem from higher prices for raw materials, food, fuel and transport, as well as rupee depreciation.

The input costs net balance is broadly similar to that noted in June, matching the emerging markets average.

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