MNI India Business Sentiment Indicator: Indian Business Sentiment Boosted By June Rate Cut - Depreciation In The Rupee Stimulates Export Orders

Results of the June business survey provide a tentative sign that the downturn in business sentiment may have bottomed. The MNI India Business Sentiment Indicator, a gauge of current sentiment among BSE-listed companies, rose by 7.7% to 67.1 in June from 62.3 in May.
 
The early June interest rate cut seems to have contributed to the rise in business confidence. Previous rate cuts have provided short-term boosts, but the magnitude of this month’s increase suggests that the aggregate easing to date is starting to have a positive impact. Firms reported increased access to credit and many reported that they were benefiting from lower interest rate costs.
 
Production, New Orders and Export Orders all improved significantly in June. Having acted as a dampener on sentiment for months, there was finally an up-tick in demand from abroad with the Export Orders Indicator rising by 13.2% on the month. Companies also anticipated that the weaker rupee would help support external demand over the coming months. This helped to underpin New Orders, which jumped 8.2% to 61.8, the highest level since November 2014. Production rose 6.3% to 61.1 in June.
 
The improvement in both output and demand measures bubbled through to the labour market. More companies thought the size of their workforce was insufficient for their requirements and they were also more optimistic about hiring in the coming three months.
 
Having benefited from the slowdown in inflation over the past year helped by the decline in global commodity prices, companies’ input costs have risen sharply in 2015. Input Prices increased to the highest since August 2014. Companies, though, were still reluctant to pass on rising costs to customers with Prices Received having remained broadly stable since the start of the year.
 
Commenting on the latest survey, Chief Economist of MNI Indicators Philip Uglow said, “It would be unwise to read too much into one month’s data but the brighter tone of the June survey provides an early signal that the trend decline in sentiment since peaking in September last year may have run its course. Exporters have been benefiting from the rupee’s depreciation and demand for labour is at the highest for a year.” 

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