Today, the Reserve Bank released the results of the 86th round of the Industrial Outlook Survey (IOS) conducted during April-June, 2019. The survey encapsulates qualitative assessments of the business climate by companies in India’s manufacturing sector for Q1:2019-20 and their expectations for Q2:2019-20¹. Responses were received from 1,231 companies in this round of the survey.

Highlights:

• In the assessment of respondents, order inflows, output and employment conditions remained tepid in Q1:2019-20.

• Sentiments on exports remained largely unchanged from the previous quarter, but in the optimistic zone; on imports, however, optimism waned.

• Optimism on the overall financial situation was maintained with improved sentiments on availability of finance from banks and internal accruals.

• Manufacturers increased selling prices in Q1:2019-20 to pass on pressures emanating from interest payments on borrowings, cost of raw materials and salary expenses, but pessimism on profit margins continued to prevail.

• Overall business sentiment remained upbeat, as reflected by the Business Assessment Index (BAI)² rising in the expansion zone to 108.4 in Q1:2019-20.

• Respondents expect modest improvement in demand conditions in Q2:2019-20.

• The outlook on the overall financial situation remains optimistic, albeit with some moderation in sentiment on availability of finance from internal accruals and banks; optimism on availability of finance from overseas in Q2:2019-20 rose slightly.

• With moderation expected in the cost of raw materials, manufacturers are upbeat about profit margins in Q2:2019-20, despite moderation of optimism on selling prices.

• The Business Expectations Index (BEI) edged down from 113.5 in Q1:2019-20 to 112.8 in Q2:2019-20.

¹ The survey responses are those of the respondents and are not necessarily shared by the Reserve Bank of India. The survey results of 85th round (Q4:2018-19) were released on April 4, 2019 on the RBI website.

² For each of the survey round, two indices are computed - one based on assessment namely Business Assessment Index (BAI) and another based on expectations, namely Business Expectations Index (BEI). Each indicator for the respective period is calculated as a weighted (share of GVA of different industry group) net response of nine business indicators. The nine indicators considered are: (1) overall business situation; (2) production; (3) order books; (4) inventory of raw material; (5) inventory of finished goods; (6) profit margins; (7) employment; (8) exports; and (9) capacity utilisation. BAI/BEI gives a snapshot of the business outlook in every quarter and takes values between 0 and 200, with 100 being the threshold separating expansion from contraction.

³ Net Response (NR) is the difference in percentage of the respondents reporting optimism and that reporting pessimism. The range is -100 to 100. Any value greater than zero indicates expansion/optimism and any value less than zero indicates contraction/pessimism. NR = (I – D), where, I is the percentage response of ‘Increase/optimism’, and D is the percentage response of ‘Decrease/pessimism’ and E is the percentage response as ‘no change/Equal’; I+D+E=100. For example, increase in production is optimism whereas decrease in cost of raw material is optimism.