The Reserve Bank of India (RBI) on Thursday in its Industrial Outlook Survey (IOS) conducted during October-December, 2019 said that the manufacturing sector is likely to see some improvement in demand in the last quarter of current fiscal.
The Reserve Bank of India (RBI) on Thursday in its Industrial Outlook Survey (IOS) conducted during October-December, 2019 said that the manufacturing sector is likely to see some improvement in demand in the last quarter of current fiscal. In the survey conducted among 775 companies, majority respondents expect improvement in demand parameters such as production, order books and exports in Q4 FY20. They also expect that employment rate will also improve within the sector. “Manufacturers remain optimistic about the overall financial situation in the fourth quarter,” said the survey. The survey also said that manufacturers expect a drop in profit margins despite muted cost pressures.
In the quarter ended December 31, order inflows and output staged an uptick, reflecting some turnaround from negative sentiments exhibited in the second quarter of the financial year 2019-20. But the sentiments on employment conditions remained weak in Q3FY20. Moreover, manufacturers assessed sluggish external demand. In the third quarter, “sentiments on the overall financial situation, which had dipped in the previous survey round, had moved into the zone of optimism,” the survey said. Profit margins of manufacturers remained subdued too due to weak demand and negative sentiments on selling prices. “Cost pressures emanating from interest payments on borrowings, purchase of raw materials and salary expenses softened in Q3,” the survey added.
The RBI, in its Order Books, Inventories and Capacity Utilisation Survey (OBICUS) for the quarter July-September 2019, provided insights of demand conditions in India’s manufacturing sector. According to the survey, the capacity utilisation at the aggregate level, declined to 69.1 per cent in Q2FY20 from 73.6 per cent in the previous quarter, “broadly tracking the de-trended index of industrial production (IIP).” Orders received in Q2FY20 were lower compared with level a year ago. The survey showed that the Finished Goods Inventory (FGI) to sales ratio and Raw Material Inventory (RMI) to sales ratio have too declined in the second quarter of the current fiscal.
Meanwhile, the RBI MPC, in 2019, cut rates five times in a row by a total of 135 basis points. In the previous meet, the committee had taken a pause on the repo rate cut in the last meeting owing to a surge in inflation. The RBI has maintained status quo on repo rates in the meeting held on February 6, 2020.