Hope and Despair

First things first! Business Confidence Index (BCI) has changed. For over nine years since BCI started, the survey has set the benchmark for gauging the mood of corporate India. But to improve upon the survey, we have tweaked the methodology in the latest survey. The good news is that in a sea of similar confidence surveys (most of which were commissioned after Business Today's BCI), the new methodology has raised the game by measuring the sentiments with sheer precision.

The bad news is that corporate India seems to remain largely despondent about their business prospects and economy per se. On a scale of 100, BCI fell sharply to 43.8, its lowest point ever, as compared to 48.2 in the previous quarter and 47 in the quarter before that. Market research agency C fore quizzed 500 CEOs and chief financial officers across 12 cities for the survey.

"In September and October, the sentiments had picked up a bit due to demand boom around the festive period. Corporate sector is not sure whether it was pent-up demand which got released or will it sustain over a period of time. People have again turned cautious due to uncertainty in the global and domestic markets. Inflation is rising due to surge in commodity prices, exporters are worried about the second wave of infections, and there's a general uncertainty around the Budget," says Abheek Barua, chief economist, HDFC Bank.

The survey shows that the respondents were pessimistic about the quarter (Oct-Dec) that just went by. For instance, on a scale of 1 to 10, most respondents gave a rating below five on all five parameters: overall economic conditions, financial situation, demand conditions, hiring conditions, and profit margins. In case of hiring conditions, where respondents were most pessimistic, they gave average rating of 4.1.

The survey highlights that 61 per cent respondents believe that the economic recovery will take more than a year. Also, 41 per cent respondents don't plan to make fresh investment for at least a year. "Capacity utilisation will remain below the pre-Covid level for the rest of this fiscal year. Barring some sectors like steel and cement where some capacities are likely to be added, we expect a broad-based improvement in capacity addition in the second half of FY22. The major triggers for improvement include roll-out of the vaccine, and a better visibility of the global and local demand scenario," says Aditi Nayar, Principal Economist at ratings agency ICRA.

While the respondents were less hopeful in the last quarter, their outlook for the January-March quarter is equally grim. For instance, in all the five parameters - economic prospects of the business, overall economic situation, demand conditions, hiring conditions and profits - their average rating is below 5 (on a scale of 1 to 10). The rating is lowest at 4.1 for hiring conditions.

"There has been an improvement in hiring trends but it's more replacement hiring. We see hiring cycle reaching pre-Covid level by the first quarter of FY22," says Ronesh Puri, Managing Director of global search firm Executive Access.

According to the survey, 72 per cent respondents say the AtmaNirbhar Bharat package has not helped their businesses while another 14 per cent say they have availed interest moratorium. Prime Minister Narendra Modi had announced the AtmaNirbhar Bharat package worth Rs 20 lakh crore in May. Later, it was expanded to include more benefits, taking the total to Rs 29.87 lakh crore.

Economists believe the government can do more to help stressed sectors since only a few companies have benefitted from the loan restructuring mechanism due to stringent norms. "A lot of sectors were expecting direct fiscal support. The relief package has come in dribs and drabs. Since the worst is believed to be over, if the government gives direct cash, it will get spent," says HDFC Bank's Barua.

Interestingly, the survey shows that people are expecting Finance Minister Nirmala Sitharaman to focus on demand generation (41 per cent) in the upcoming Budget followed by new infrastructure for demand (4 per cent), supply-side policies and liquidity (3 per cent), exports (2 per cent) and new private investment (1 per cent). A large chunk, 47 per cent, is hoping the FM focuses on all these areas.

The survey found that coronavirus-induced pain continues to bother corporate India. For instance, 43 per cent respondents say their businesses are down 25-50 per cent due to the pandemic, and 30 per cent say it is down 50-75 per cent. "Most small- and medium-sized businesses are still not out of the woods. There are winners and losers in the current scenario, but typically, large companies have performed better than the smaller ones, which is why GDP numbers are on road to recovery," says an economist.

Recently, RBI said real GDP is expected to break out into positive territory with meagre growth of 0.1 per cent in December 2020 quarter, and pick up further to 0.7 per cent in last quarter of FY21.

As a supplement to the survey, we do an assessment of other economic indicators. These include export-import, index of industrial production (IIP) and consumer price inflation (CPI).

IIP recovered sharply in October with 3.6 per cent growth. Retail inflation (CPI) softened a bit in November at 6.9 per cent but above RBI's comfort zone. Both exports and imports picked up slightly in three months to November.

The steep fall in the latest BCI is a sign of persistent distress in the corporate world. The survey results show that even though business leaders are largely sceptical of the government's efforts, they remain hopeful of the next big thing on the horizon - Budget 2021.

@manukaushik