Sentiment in the manufacturing sector remains subdued as the proportion of respondents reporting higher output growth during April-June has fallen to 41 percent from 54 percent 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 percent in Q1, compared to 46 percent in Q4 of 2018-19. In terms of order book, 36 percent of the respondents in April-June 2019 are expecting higher number of orders against 44 percent in January-March 2019, the industry body said.
Moreover, 86 percent of the respondents are expecting either more or same level of inventory in April-June 2019, substantially higher than 69 percent 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 percent of the participants expect a rise in outward shipments for April-June and 27 percent 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 percent 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 percent 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 percent per annum as against 10.3 percent per annum during last quarter, but the highest rate remains as high as 14 percent.
“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 percent of its respondents, which is significantly lower than 72 percent 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.