‘Manufacturing sector outlook moderates in Q1’

Sentiment in the manufacturing sector remains subdued as the proportion of respondents reporting higher output growth during April-June has fallen to 41 per cent from 54 per cent in the previous quarter, according to a survey by Ficci. The latest quarterly report portrays a moderation of outlook for the sector in Q1 (April-June 2019-20) as the percentage of respondents reporting higher production in first quarter has fallen as against the January-March (Q-4) of 2018-19, it said.

The percentage of respondents expecting low or same production is 59 per cent in Q1, compared to 46 per cent in Q4 of 2018-19. In terms of order book, 36 per cent of the respondents in April-June 2019 are expecting higher number of orders against 44 per cent in January-March 2019, the industry body said. Moreover, 86 per cent of the respondents are expecting either more or same level of inventory in April-June 2019, substantially higher than 69 per cent in Q1 of 2018-19.

This has been largely due to subdued domestic and export demand, the survey noted. It also cited a moderate outlook for exports as 34 per cent of the participants expect a rise in outward shipments for April-June and 27 per cent estimate exports to continue to be on similar path as the same quarter last year. However, exchange rate fluctuations have not led to any significant change in exports as 79 per cent of the respondents reported that the exports were not affected much by rupee fluctuation. Hiring outlook for the sector shows a bleak picture as 65 per cent of the respondents mentioned that they are not likely to hire additional workforce in the next three months. Average interest rate paid by the manufacturers has slightly decreased to 9.9 per cent per annum as against 10.3 per cent per annum during last quarter, but the highest rate remains as high as 14 per cent.

“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,” Ficci stated. The survey noted that cost of production as a percentage of sales for manufacturers has risen for 63 per cent of its respondents, which is significantly lower than 72 per cent for Q4 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, it said.