Confidence at India’s Largest Companies Hit a Record High in September

Business confidence in India rose to a record high in September and was up 20% on the year, adding to the generally more positive mood in India since Narendra Modi was elected Prime Minister. Firms reported an easing in inflationary pressures and improved credit availability.

The MNI India Business Indicator, calculated from responses from BSE listed companies, rose by 2.8 points to 71.2 in September from 68.4 in August.

Part of the latest increase was due to the upcoming festival period, although the government’s plans to invest more in infrastructure were behind a pick-up in sentiment at construction firms.

Production increased to the highest in a year, driven by greater demand during the festival season which starts next month. New orders eased slightly, though, and both measures have not mirrored the near 20% improvement seen in overall sentiment over the past year.

While many other key activity series in the survey have risen or at least remained stable in recent months, the Employment Indicator has trended downwards and fell to a 10-month low of 49.9 in September.

The disinflationary trend evident in the survey over the past year continued in September and is likely to have supported the overall improvement in business sentiment this month. The latest fall suggests we’ll see further easing in the official inflation data.

Many companies reported that banks were lending at increasingly competitive rates and that credit was easier to come by. The Availability of Credit indicator rose to a series high, helped by the recent cuts in the statutory liquidity ratio by the RBI.

“There are a number of positives to take out of this month’s report, including the overall pick-up in sentiment and the easing in inflationary pressures," comments Chief Economist of MNI Indicators Philip Uglow.

"The latter is a prerequisite for looser monetary policy ahead, although a sustained period of lower inflation is needed before the RBI considers easing policy. The weakness in the employment market, though, adds a cautionary note to the constant wave of Modi inspired optimism.”

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