India's business activity optimism falls in February 2023: S&P Global

Private sector companies in India remained positive that output levels would increase over the course of the coming year. Investment targets were pulled back, in line with receding confidence for profitability, while hiring intentions recovered to its highest in two years. Sentiment surrounding inflation was mixed, with an upward revision for input prices contrasting with a downward correction for staff costs. Concurrently, the net balance of firms aiming to hike their output charges matched that seen in October 2022 when the survey was last conducted.

Anecdotal evidence indicated that inflation concerns and competitive pressures were the main factors stymieing business confidence. Firms nevertheless identified some opportunities to the outlook, including demand resilience, product diversification, advertising, and pipelines of new work, as per S&P Global’s survey.

In the manufacturing industry, the proportion of optimists outstripped that of pessimists by 20 per cent in February, down from 27 per cent last October.

Indian companies intend to expand operating capacities in the year ahead to accommodate for new business growth. Moreover, job creation looks set to strengthen as seen via an improvement in the employment net balance from 5 per cent to 10 per cent. The latest figure was the highest since February 2021, but below the global average (17 per cent).

While a net balance of 17 per cent of survey members reported plans to increase investment on physical assets late last year, only 12 per cent now foresee growth. This was the lowest reading recorded since October 2021, albeit equal to the global average.

Confidence surrounding research and development spending was also at its weakest since October 2021, with the net balance for India well below the average for emerging markets.

A higher net balance of private sector companies foresee an increase in non-staff costs than recorded in late-2022, but the figure for India was the lowest globally. Inflation expectations intensified substantially among manufacturers, with the net balance up from 5 per cent to 13 per cent.

Although firms on average aim to share additional cost burdens with their clients, several pointed out that competitive pressures may restrict pricing power. The output charges net balance was unchanged at 16 per cent. Globally, only China saw a lower figure than India, the survey added.

Sentiment regarding profits in India faded during February. The net balance of companies predicting growth fell from 21 per cent to 15 per cent, the joint-lowest mark since October 2021. By comparison, the global and emerging market readings were at 16 per cent and 20 per cent.

ALCHEMPro News Desk (DP)