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Moderate Outlook for Manufacturing in Q1 2019-20

Investment outlook subdued

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Investment outlook subdued

 

Make in India

A moderate outlook is seen for the manufacturing sector in Q-1 (April-June 2019-20), according to a survey by the Federation of Indian Chambers of Commerce and Industry (FICCI).

Overall sentiments in manufacturing remains subdued as the proportion of respondents reporting higher output growth during the April-June 2019 has fallen to 41% as compared to Q-4 of 2018-19 (54%).

The percentage of respondents expecting low or same production is 59% in Q-1 2019-20 which was 46% in Q-4 of 2018-19, said the survey on 23 June 2019.

In terms of order books, 36% of the respondents in April-June 2019 are expecting higher number of orders against 44% in January-March 2019.

FICCI’s latest quarterly survey assessed the sentiments of manufacturers for Q-1 (April-June 2019-20) for twelve major sectors namely automotive, capital goods, cement and ceramics, chemicals, fertilizers and pharmaceuticals, electronics & electricals, leather and footwear, medical devices, metal & metal products, paper products, textiles, textile machinery and miscellaneous.

Responses have been drawn from over 300 manufacturing units from both large and SME segments with a combined annual turnover of over 3.5 lakh crore.

Capacity Addition & Utilization

In terms of capacity utilization, FICCI survey noted that the overall capacity utilization in manufacturing has witnessed a slight fall to 78% in Q-1 2019-20 as compared to 80% in the previous quarter. The future investment outlook is slightly subdued than that was perceived in Q-1 of 2018-19. 37% respondents reported plans for capacity additions for the next six months as compared to 40% in Q-4 of 2018-19.

High raw material prices, high cost of finance, uncertainty of demand, shortage of skilled labor, high imports, requirement of technology upgradation, low domestic and global demand, excess capacities, delay in disbursements of state and central subsidies and competing countries such as Bangladesh and Vietnam enjoying lower wage cost and export benefits resulting in erosion of competitiveness of Indian exporters are some of the major constraints which are affecting expansion plans of the respondents.

In most sectors covered in the survey namely Automotive, Cement and Ceramics, Leather and Footwear, Paper Products and Textiles Machinery average capacity utilization has either decreased or remained almost same in Q-1 of 2019-20 as compared to Q-4 2018-19.

Inventories

86% of the respondents are expecting either more or same level of inventory in April-June 2019, which is substantially higher than 69% as was the case in Q-1 of 2018-19. This has been largely due to subdued domestic and export demand.

Exports

The outlook for exports is moderate as per the Survey as 34% of the participants are expecting a rise in exports for Q-1 2019-20 and 27% are expecting exports to continue to be on same path as that of same quarter last year. However, exchange rate fluctuations have not led to any significant change in exports as 79% of the respondents reported that the exports were not affected much by rupee fluctuation. Thereby, emphasizing that there were other global factors that are restricting the growth of our exports.

Hiring

Hiring outlook for the sector shows a bleak picture as 65% of the respondents mentioned that they are not likely to hire additional workforce in the next three months. This shows a slight improvement from the hiring scenario in the previous quarter Q-4 of 2018-19, where 70% of the respondents were not in favor of hiring additional workforce.

Interest Rate

Average interest rate paid by the manufacturers has slightly decreased to 9.9% p.a. as against 10.3% p.a. during last quarter, but the highest rate remains as high as 14%. The recent cut in repo rate by RBI should come as a relief for the industry if banks pass it on and it expects more reduction in the rates in coming months to drive investments.

Sectoral Growth

Based on expectations in different sectors, it is noted that except sectors like Electronics & Electricals which is likely to register strong growth in Q-1 2019-20, whereas most other sectors are likely to have either moderate or low growth.

Production Cost

The cost of production as a percentage of sales for manufacturers in the survey has risen for 63% respondents. This, of course, is significantly lower than 72% for Q-4 of 2018-19. This is primarily due to increased cost of raw materials, wages, power cost, rising crude oil prices and increase in finance cost. fiinews.com

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