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India Inc business sentiment improves, but fresh investments unlikely

NCAER Business Expectations Survey indicated that the proportion of respondents expecting that 'overall economic conditions will improve in the next six months' rose from 17.1 per cent in Q1:2020-21 to 29.8 per cent in Q2:2020-21

twitter-logoJoe C Mathew | November 2, 2020 | Updated 20:56 IST
India Inc business sentiment improves, but fresh investments unlikely
Business sentiment of Indian industry is improving, shows NCAER Business Expectations Survey

The business sentiment of Indian industry is improving, but additional investments could still take time, a survey conducted by Delhi-based think tank  National Council of Applied Economic Research (NCAER) suggests.  

The results of the 114th Round of the NCAER Business Expectations Survey (BES) carried out in September 2020 show that after a decline for two consecutive quarters (Q4:2019-20 and Q1:2020-21) and falling to its lowest level ever of 46.4 in Q1:2020-21 (Round 113), the NCAER Business Confidence Index (BCI) increased to 65.5 in Q2:2020-21 (Round 114), a quarter-on-quarter (q-o-q) increase of 41.1 per cent.  

However, on a year-on-year (y-o-y) basis, the Q2:2020-21 BCI was lower by 36.5 per cent compared to Q2:2019-20 and remained lower than the BCI in Q4:2019-20. The think-tank says the results of the survey suggests that although business sentiment is recovering from its lowest ever level in Q1:2020-21, it continues to remain subdued.

The BCI, considered as an indicator of business sentiment across Indian industry, is driven by four components that have equal weights -- Overall economic conditions in the next six months, financial position of firms in the next six months, comparison of present investment climate as against the six months ago and the present capacity utilisation as compared to the optimal level are the four components.  

The latest round of survey indicated that the proportion of respondents expecting that 'overall economic conditions will improve in the next six months' rose from 17.1 per cent in Q1:2020-21 to 29.8 per cent in Q2:2020-21. The proportion of respondents expecting that the 'financial position of firms will improve in the next six months' rose from 19.8 per cent in Q1:2020-21 to 27.8 per cent in Q2:2020-21.  However, the proportion of respondents saying that the 'present investment climate is positive compared with six months ago' contracted from 15.2 per cent in Q1:2020-21 to 13.7 per cent in Q2:2020-21.  

The survey also showed that the proportion of respondents saying that the 'present capacity utilisation is close to or above the optimal level' rose from 37.2 per cent in Q1:2020-21 to 58.4 per cent in Q2:2020-21, although despite this substantial improvement in the results for this component, capacity utilisation remains at historically low levels.

The BCI tracks business sentiment for around 600 Indian companies to compute the composite BCI. The survey elicits responses from firms across six cities to assess business sentiment in the four regions of India: Delhi NCR representing the North; Mumbai and Pune, the West; Kolkata, the East; and Bengaluru and Chennai, the South. This includes all types of industries - public sector, private limited, public limited, partnerships/individual ownership firms, and multinational corporations and a wide range of industry sectors such as consumer durables, consumer non-durables, intermediate goods, capital goods, and services.  

NCAER has been conducting the BES every quarter since 1991.

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