Companies are very despondent about the cost of capital. They are also less cheerful than earlier on availability of funding.
Mumbai: There's a common despair in conversations regarding the Indian economy as both the motors that control it appear to have moderated down. Consumption demand has begun to slow down, while private sector investment has seen decline for a while.
Why are India’s corporate honchos stressed about the future prospects and what is the major reason for their worry?
Reserve Bank of India’s (RBI) industrial survey may hold the answer. 1,231 companies took part in the survey.
The business sentiment indices show that Indian manufacturing companies are worried about the coming quarter while being satisfied with the present environment reported the Mint.
The expectations index which was 113.5 for the June quarter lowered to 112.8 for the September quarter.
Companies are very despondent about the cost of capital. They are also less cheerful than earlier on availability of finance. This may be viewed as a mark from the progressing liquidity pressure in non-bank finance companies (NBFC).
Besides finance, companies are apprehensive that they won’t match their sale targets like they used to, and increasing the level of inventories causing production cuts. The auto industry may be passing through such a phase.
The positive sentiment over exports, jobs and utility of capacity has decreased.
The sharp drop in input prices witnesses recently is the only silver lining that would help companies sustain profit margins.
The all-round despondency among companies does not foreshadow well for private investment, which is already in decline for some time now.
When businesses are uncertain around future profitability, it is clear they wouldn't want to invest.