Coimbatore-based D. Gandhikumar has a foundry that supplies components to more than 150 companies in India. The components go into motors, pumps and air compressors that are used by the agriculture, automobile and capital goods sectors. For the past two years, he has been fighting a fierce battle against the slowdown. Poor growth in the auto and agriculture sectors has dried up his order book and shrunk his revenues. "Two years ago, we couldn't meet clients' demand due to the high backlog, but today there's hardly any demand," he says.
Gandhikumar is one of many small and medium enterprise (SME) entrepreneurs who are pinning their hopes on the next government. In fact, businesses of all sizes - big, medium, small and micro - are more optimistic today than they were in the October-to-December quarter, according to the latest Business Today-C fore Business Confidence Survey.
The survey for January-to-March 2014 shows that sentiment in corporate India has improved significantly since the previous quarter. On a scale of 100, the confidence level was at 51.4 in the fourth quarter of 2013/14, up from 48.6 in the previous three months. Market research agency C fore surveyed 500 CEOs and chief financial officers in 12 cities.
The cost and availability of finance are two other areas where companies are more confident now than in the last two quarters. In the current survey, 32 per cent of respondents expect finance to be more easily available in the April-to-June quarter. In the last survey, when respondents were asked about their expectations on this issue for the January-to-March period, just 11 per cent were hopeful that things would improve. In the survey before that, the number stood at 16 per cent.
Major respite for the economy has come from weakening inflation - retail and wholesale - on account of lower food inflation. Inflation based on the wholesale price index fell to a nine-month low of 4.68 per cent in February, due to a drop in vegetable prices. "While inflation still remains a concern, we don't see interest rates going up - they will remain the same or go down," says Siddhartha Roy, Economic Advisor, the Tata Group.
Business confidence hit a high of 74.8 in the quarter ended March 2011, when the survey started, before dropping to a historic low of 48.2 in the July-to-September 2013 quarter. The last financial year was particularly subdued due to high inflation, the rising current account deficit, the depreciating rupee and weak economic growth. But the situation has improved on many of these fronts in the past few months.
The survey points out that some 43 per cent respondents expect overall demand (for their goods and services) to go up in the April-to-June period while 50 per cent respondents foresee pick-up in sales during the same period.
The price of raw material is another area where businesses expect things to improve. For instance, 34 per cent respondents say they expect costs to decline in April-to-June period. Siraj Chaudhry, chairman of the Indian arm of US food major Cargill, says the hardening of the rupee against the dollar has resulted in lower input costs for companies such as his. He says: "Edible oil is a big category for us. We are importers. With rupee appreciation, input prices have come down." The rupee has risen around 12.4 per cent to Rs 59.75 against the dollar since its all-time low of Rs 68.83 in August last year.
Nomura's Varma says raw material prices in general will be lower, because of softer commodity prices. "China, the world's largest consumer of commodities, has witnessed moderation in growth," she says. "Prices of commodities such as coal and metals have seen a decline."
Interestingly, the vast majority of the respondents (82 per cent) say their overall investment will increase if the new government has a clear mandate. "The elections have raised the prospects of a government that will improve the investment climate by bringing consistency to policies. Increased investment creates more employment and increases per capita income, leading to increased spending," says Rakesh Srivastava, Senior Vice President (Sales & Marketing), Hyundai Motor India.
Forty per cent of respondents expect hiring to improve in the April-to-June period - significantly higher (16 per cent) than in the last survey. Adil Malia, President for Human Resources at the Essar Group, says recruitment is expected to improve in the next 12 months. "Hiring in fast-moving consumer goods, IT and pharma will be more robust as compared to infrastructure and manufacturing," he says.
METHODOLOGY Market research agency C fore designed and conducted the survey. Field work was conducted in March 2014. A structured questionnaire was administered to the CEOs or CFOs of companies. In all, 500 CEOs or CFOs representing various industries, from companies of varying size, were interviewed. The survey covered 12 cities: Delhi, Mumbai, Chennai, Hyderabad, Bangalore, Kolkata, Chandigarh, Lucknow, Nagpur, Kochi, Visakhapatnam and Bhubaneshwar. Companies were segmented based on turnover and products. Those with a turnover of more than Rs 500 crore were classified as big, those with a turnover of Rs 100-500 crore as medium, those with a turnover below Rs 100 crore as small, and those with a turnover of under Rs 5 crore as micro businesses. |