MNI India Business Sentiment Indicator: Business Confidence Falls To Pre-Modi Level - Production Lowest Since July 2013

Sentiment towards the current business environment and expectations for the future are now both back to pre-Modi levels in a blow to the government as it completes its first year in office.
 
The MNI India Business Sentiment Indicator, a gauge of current sentiment among BSE listed companies, fell by 2.5% to 62.3 in May from 63.9 in April. The fall in business sentiment left it at the lowest level since April 2014 and in hand with declines in output and orders points to a significant deterioration in business activity. Overall sentiment has reacted positively to the two cuts to benchmark interest rates this year from the Reserve Bank of India, although their impact has proved temporary.
 
Companies reported a significant weakening in both domestic and export orders. New Orders fell sharply to 57.1, the lowest since May 2013, while Export Orders declined to 53.6, the weakest since June 2013. The recent weakening of the rupee has yet to have any impact on overseas demand. In contrast, firms saw the weakness of the currency as a negative with adverse implications for business in May. The indicator which measures the Effect of the Rupee Exchange Rate fell to a four-month low of 45.2 in May, with companies concerned about the increased cost of imports.
 
Input Prices increased to 58.6 in May from 55.9 previously, the highest since October 2014 and look to have troughed in February. So far, weak demand and competition have kept Prices Received capped although firms’ expectations for the future have been rising in recent months.
 
Production declined to a near two-year low in May and evidence from the survey suggested that Narendra Modi’s ambitious “Make in India” project is failing to get off the ground. Manufacturing companies were the least ambitious about their future production plans in May, posting the fifth consecutive decline.
 
Commenting on the latest survey, Chief Economist of MNI Indicators Philip Uglow said, “The May report confirms that the trend in business activity is down with overall sentiment, output and orders all continuing to fall from the Q4 peak. Along with the continued soft official data on production and exports, and the low level of inflation, we expect the RBI to decrease rates further at the June 2 monetary meeting.”

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