Today, the Reserve Bank released the results of the 89th round of the Industrial Outlook Survey (IOS) conducted during January-March, 2020. The survey encapsulates qualitative assessments of the business climate by Indian manufacturing companies for Q4:2019-20 and their expectations for Q1:2020-21¹. In all, 860 companies responded in this round of the survey.

In the wake of the sudden adverse impact of the coronavirus outbreak on industrial activities, a quick survey on a few critical IOS parameters was conducted during March 18-20, 2020 among these 860 respondents, of which, 48 companies responded to the repeat survey. The feedback from these 48 companies is summarised in Special Tables 24 and 25.

Highlights:

A. Assessment for Q4: 2019-20

• Manufacturing companies assessed some improvement in production and order books in Q4:2019-20 from the weak sentiments exhibited in the previous quarter; the sentiments on employment conditions became mildly optimistic.

• Respondents polled positive sentiments on external demand and their assessment of the overall financial situation improved.

• Prices of raw materials as well as selling prices were assessed to increase, but assessment of profit margins continued to be subdued, albeit there was some abatement in the downbeat sentiments.

• Pressures stemming from interest payments on borrowings and salary expenses were assessed to soften.

• The Business Assessment Index (BAI)² attained a level of 102.2 and moved into the zone of optimism after two successive quarters of prevailing pessimism.

B. Expectations for Q1: 2020-21

• Respondents expected improvements in demand conditions in Q1: 2020-21.

• Manufacturers remained optimistic on the overall financial situation.

• Manufacturers expected higher selling prices on the back of increased cost pressures from inputs and higher salary outgo; profit margins projections for Q1:2020-21, however, continued to be pessimistic though there was some moderation in pessimism.

• Due to anticipated improvement in the demand parameters, the business expectations index (BEI) increased from 105.0 in Q4:2019-20 to 108.8 in Q1:2020-21.

C. Quick survey results (48 companies)

• Respondents of the repeat survey conducted during March 18-20, 2020 covered 48 companies, who assessed demand conditions to deteriorate for the manufacturing sector, which also translated into pessimism on the overall business situation for Q4:2019-20. The outlook for Q1:2020-21 also indicated negative sentiment.

• A comparison of results for the common respondents both for round 89 of IOS as well as the quick survey reflected (a) very sharp deterioration in sentiments across all sectors for Q4:2019-20; and (b) stark pessimism for Q1:2020-21, when compared to their assessment given in the regular round of the survey.

Special Tables:

Summary Results of Quick Survey (48 respondents) during March 18-20, 2020:
Assessment for Q4:2019-20 and Expectations for Q1:2020-21

¹ The survey results reflect the views of the respondents, which are not necessarily shared by the Reserve Bank of India. This round of the survey was launched on January 30, 2020 and results were compiled with data received till March 18, 2020. The results of the 88th round of the survey (Q3:2019-20) were released on February 6, 2020 on the RBI’s website.

² For each of the survey round, two indices are computed - one based on assessment [viz., Business Assessment Index (BAI)] and another based on expectations [viz., Business Expectations Index (BEI)]. Each indicator for is calculated as a weighted net response of nine business indicators, weights being the share of industry groups in GVA. 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.