A survey by industry lobby Assocham has found that most top corporate executives in India expect sales to pick up over the next six months due a recovery in the economy.
The body, which has called for the Reserve Bank of India to cut key interest rates and dismissed concerns of price inflation, said companies are unlikely to increase prices for fear of scuttling demand.
“Sales volume will improve in the coming six months but the pricing power of the companies will not change resulting in the sale price staying constant,” Assocham said.
Partly due to tight credit conditions, India’s GDP growth was estimated to have dipped to a shocking 5 percent last financial year.
More worryingly, India’s industrial growth slipped to just 0.6% in February, raising concerns among investors about the slow down.
However, the new survey found that the mood among India’s companies is more upbeat now. India is widely expected to grow above 6% this financial year.
“The March 2013 round of the survey showed that economic situation has somewhat turned better in the last six months. Further, there is an expectation of situations to improve further in the short to medium term horizon at both industry as well as firm level,” the latest round of ASSOCHAM Bizcon survey found.
However, since the companies will not be able to raise the selling price, profit margins will remain constant at the present level. So also is the situation in regard to fresh investment “as many 36 per cent of the respondents felt that investment levels are “bound to remain at levels that are there currently.”
“Drop in commodity prices, mainly that of crude oil , coal and gold, has helped the sentiment turning better. However, exports prospects still remain worrisome and the rupee may not considerably improve despite continuous inflows in the stock markets which have turned better,” said ASSOCHAM President Rajkumar N Dhoot.
As per the survey findings, 35.9 per cent of the industry covered in the polls foresees that six months from now investment is bound to remain at current levels. It is only after definite signals of demand revival are seen and interest rates decline, the capex cycle will turn positive.
“Few factors such as weak demand in export market, rising imports in the home market, poor infrastructure, high cost of credit & increasing raw material prices continue to adversely affectthe business performance thereby slowing down the pace of growth of the industry.”
Over 61.5 percent of the respondents feel that their sales volumewill increase in the next six months while 64.1 percent of respondents said selling prices will be more or less atthe same level.
March 2013 survey results showed that 64.1 percent of the firms were engaging at highlevel of capacity utilization whereas in December only 48.2 percent seemed to be doingso.
Over 56 percent of the respondents were of the opinion that their order books position would further improve in the coming six months.
On inflation, it said, indirect impact ofthe diesel price hike in September 2012 remained contained, indicating that firms did not pass on rising input costs to output prices on account of weak demand conditions
The survey showed that increasing wage costs continues to bea worrying factor for the industry with 69 percent of the industry expecting increasingwages to adversely impact their performance.
Higher input costs shrinks the profit margins of the firms. Asked whether rising input costsis adversely impacting them majority (77 percent) of them were in agreement that was the case. The worrying aspect seems to be that the percentage of respondents who believe that rise in input prices adversely impacts their operations which has gone up.
“There seems to be some improvement with regards to the availability of credit as the survey results show that 44 percent of the industry believes that limited availability of credit is not a cause of concern for them”, added Mr. Dhoot.