MNI India Business Sentiment Indicator,: India Business Confidence Lowest Since December 2015 - Inflationary Pressures Emerge

Confidence among Indian businesses fell to a five-month low in May led by weak export orders and higher raw materials costs.
 
The MNI India Business Sentiment Indicator, a gauge of current sentiment among BSE-listed companies, fell to 61.8 in May from 62.4 in April. This is the third consecutive decline and was led solely by the manufacturing sector, while sentiment among construction and service sector firms improved.
 
May’s fall in confidence came despite the April rate cut from the Reserve Bank of India, and suggests that action on rates is failing to have a significant impact on sentiment. In previous instances, policy loosening has boosted business confidence in the short-term, although it has failed to provide a sustained increase.
 
The recovery in global commodity prices, especially crude oil, pushed up input costs with firms passing these increases down the supply chain. Input Prices increased for the third consecutive month to 60.3, the highest since June 2015. Prices charged by firms rose to the highest since November 2014 and panelists anticipated prices to continue rising over the next three months.
 
New Orders held steady in May, although expectations for the coming three months eased for the third month in a row, falling to 64.8, the lowest level this year. In contrast, Export Orders fell to 52.9, the lowest level since May 2013.
 
Fewer firms reported output growth in May and were less optimistic about production in the next three months. The Production Indicator fell for the second consecutive month to 55.6 from 57.0 in April. The decline was solely led by manufacturing firms, in line with the still sluggish industrial production growth in India, especially in manufacturing output which has contracted four times in the last five months.
 
Commenting on the latest survey, Chief Economist of MNI Indicators Philip Uglow said, “With growth in China weakening, there has been increased focus on India’s ability to grow rapidly for a sustained period. Evidence from the MNI India Business Sentiment Survey, though, paints a relatively subdued picture with output growth in particular running at a low level. Moreover, with input prices on the rise again, the scope for the RBI to decrease rates further looks limited.”