Business sentiment for Q4FY20 down 30.4% QoQ, lowest since 1998 financial crisis

Business sentiments of Indian industries, which had already been weak to start with, worsened further in Q4FY20, down by 30.4 percent for April 2020 due to the coronavirus-induced lockdown, the National Council of Applied Economic Research’s (NCAER) Business Confidence Index (N-BCI) found.

The index compiled from the NCAER’s 112th Business Expectations Survey (BES) conducted in March found indicators of business sentiments across Indian industry stood at 77.3 in Q4FY20; compared to 111.2 in Q3FY20.

This is a 30.4 percent drop quarter-on-quarter (QoQ) and a 32.9 percent drop year-on-year (YoY). The 77.3 number is the lowest confidence level recorded since 1998, when BCI fell to 68.3 due to the Asian Financial crisis (FY’97-98).

The drop was seen across components with macro ones registering the worst slump as follows:

When asked about macro outlook, industry sentiments in regards to “overall economic conditions will be better in the next six months” and “present investment climate is positive” was 21 percentage points lower for both.

When asked about the micro (own firm) sentiments in regards to “financial position of firms will improve in the next six months” the drop in confidence was 13.3 percentage points, and for “the present capacity utilisation is close to or above the optimal level” the fall was 11.6 percentage points.

Moreover, a weekly examination of the four components showed that business sentiments took a turn for the worse during the fourth and fifth weeks of March, 2020, coinciding with the announcement of the first COVID-19 lockdown on March 24, 2020.

Sector-wise, decline was seen across the board on QoQ basis; with sentiments for consumer durables slumping 32.9 percent, consumer non-durables down 31.6 percent, intermediate goods fell by 35 percent, capital goods decreased 27.5 percent, and services sector was down by 30 percent.

Region-wise decline was also across the board with sentiments down by 7.1 percent in the east, down 19.7 percent in the west and slumped 50.5 percent in the north. Due to the lockdown due to COVID-19, there was no representative sample from the southern region, NCAER said.

Further, there was an across-the-board decline in sentiments across all the five firm groups based on annual turnovers (on QoQ basis) in Q4FY20. During this quarter, the BCI figures fell by 13.1 percent for micro firms with annual turnovers of less than Rs 1 crore, by 37.3 percent for firms with annual turnovers of Rs 1-10 crore, by 27.6 percent for firms with annual turnovers of Rs 10-100 crore, by 22.5 percent for firms with annual turnovers of Rs 100-500 crore, and by 17.8 percent for firms with annual turnovers of over Rs 500 crore.

Sentiments regarding production, domestic sales, exports, imports of raw materials, and pre-tax profits also worsened in April 2020. About one-third of respondents expected a decline in each of the above parameters.

The firms also perceived that the costs of raw materials, electricity, and labour, and ex-factory prices would rise in the next six months.

Sentiments regarding hiring in the labour market were muted. While 60.2 percent of the firms expected no change in permanent labour employed over the next six months, 7.9 percent expected it to decline. The corresponding figures for temporary/casual labour were 64.1 per cent and 13.5 per cent, respectively.

The Political Confidence Index (PCI) fell from 96.2 per cent in January to 73.7 per cent in April, falling by 23.4 percent on a q-o-q basis and by 31.3 percent on a YoY basis.

In order of magnitude of the percentage change in positive responses on a q-o-q basis, these components were ‘managing the exchange rate’, ‘managing the overall economic growth’, ‘managing inflation’, ‘pushing economic reforms forward’, ‘external trade negotiations’ and ‘managing government finance’.

However, sentiments improved in case of the components, ‘managing a conducive political climate’ and ‘managing unemployment’.