Indian business sentiment fell for the third consecutive month in September amid subdued foreign demand and a sharp depreciation of rupee, a Deutsche Boerse survey said.
The MNI India Business Sentiment Indicator, a gauge of current sentiment among BSE-listed companies, fell from 62.3 in August to 61.4 in September, the lowest level since February 2014.
“Growth in some of India’s largest companies is being held back by the weakness in global demand and the negative impact of the rupee on operations,” MNI Indicators Chief Economist Philip Uglow said.
The report said that the sharp deceleration in rupee as compared to year is attributed to large base effect.
Prime Minister Narendra Modi’s historic victory had led to a substantial rise in confidence in 2014 on expectations that his government’s pro-business policies would improve business environment.
“While there has been some progress in the ease of doing business, it has been slow, and a growing sense of realism has seen business confidence wane,” the report said.
Respondents said that growth of new work was also stymied by softer foreign demand. Moreover, a sharp depreciation of the rupee added to companies’ import bills and made foreign loans more expensive to service.
“Overall business confidence is back at the lows seen in 2014 while orders appear to have resumed their steady downward course,” Uglow said.
On RBI policy rates, the report said that the central bank’s rate cuts this year has helped reduce the extent of the downturn in business confidence.
With inflation remaining low, there is a clear scope for the Reserve Bank to cut the key policy rates further in its late September meeting, it added.
“Such a move seems even more likely given the decision by the US Federal Reserve to stand pat this month,” Uglow said.
RBI, which has lowered key rates thrice so far this year by 25 basis points each, will hold its next bi-monthly monetary policy review on September 29. However, two of the three rate cuts have been announced outside the scheduled reviews.