Indian business sentiment fell for the first time in three months in March as companies faced lower demand amid rising input prices adding to expectations of an interest rate cut by the Reserve Bank, says a survey.
The MNI India Business Sentiment Indicator, a gauge of current sentiment among BSE-listed companies, fell to 62.7 in March from 63.5 in February.
“It looks increasingly likely that the RBI will cut interest rates at its April meeting. Note, though, that input prices as well as prices charged have been trending higher recently, which will likely limit the extent of monetary easing,” Chief Economist of MNI Indicators Philip Uglow said.
The decline in sentiment was led solely by manufacturing firms. In contrast, sentiment among construction firms rose significantly and service sector companies were also more optimistic about overall business conditions, the survey said.
“The decline in confidence in March was relatively modest and sentiment is still up from the recent trough in December. Importantly most key measures in the survey have stabilised and turned upwards in recent months following the trend decline that has been in place since September 2014,” Uglow added.
In contrast with last month, fewer companies reported an increase in both new orders and export orders, and they were also less bullish on future demand.
The survey noted that firms faced higher prices for their inputs and consequently, companies raised the prices they charged and expected them to increase further in the coming three months.
Another factor that added to companies’ outlays was the depreciation of the rupee. Companies said that this made their imports more expensive. The indicator measuring the effect of the rupee exchange rate fell further into contraction to 46.3 from 48.4 in February, the survey added