MNI India Business Sentiment Indicator: India Business Confidence Highest Since February - Export Orders Up Sharply

Strong growth in export orders and a decline in both input prices and the cost of debt service helped to push sentiment among Indian businesses to a four-month high in June.
 
The MNI India Business Sentiment Indicator, a gauge of current sentiment among BSE-listed companies, rose to 63.0 in June from 61.8 in May. This was the first rise in four months, lifting confidence 1% above the series average. The increase was led by manufacturing and construction sector firms while sentiment in the service sector declined.
 
In spite of the latest rise, confidence eased slightly over the second quarter of 2016. The MNI India Business Sentiment Indicator averaged 62.4 in the three months to June, slightly down from 62.7 in the March quarter. Moreover, firms’ confidence towards the future was shakier, with the Expectations Indicator down 5.8% in the second quarter to the lowest since Q2 2013.
 
Demand from abroad for goods and services produced by firms on our panel increased in June. The Export Orders Indicator rose 13.2% on the month to 59.9, the highest level in a year and 4% above series average. Firms were also more optimistic about foreign demand in the coming three months, with the Future Expectations Indicator rising for the first time in four months.
 
With higher demand, a greater proportion of firms raised production in June compared with the previous month. The Production Indicator rose for the first time in three months in June to 57.9 from 55.6 in the previous month.
 
One source of relief for firms came from the cost of debt service. The indicator measuring interest rates paid fell to 44.4 from 45.8 in May, the lowest since January. However, fewer firms expected interest rates to fall in the next three months with the majority anticipating stable interest rates ahead. The Expectations Indicator rose 7.1% to 46.8 in June, the highest since October 2014. This is in line with the current macro environment with rising food and fuel prices and a hike in services taxation, raising the bar for any further rate cuts from the Reserve Bank of India.
 
Following three consecutive increases, fewer firms reported price rises this month. The Input Prices Indicator fell to 56.1 in June from 60.3 in the previous month. Sentiment towards the rupee exchange rate also improved for the second consecutive month. More companies found the impact of the rupee to be neutral on their business operations, compared with last month, while those who saw it as a negative eased.
 
Commenting on the latest survey, Chief Economist of MNI Indicators Philip Uglow said, “There are a number of positives to take away from the June survey. Export orders increased sharply and Production put in the first rise in three months. Against this, firms are not optimistic about the future with expectations for business conditions falling to the lowest in three years in the second quarter.”