Profit margins of Indian businesses remained subdued for a quarter: IIM survey

The one-year ahead business inflation expectation remained unchanged at 3.14% in August and September. IIM survey said the share of companies that reported ‘much less than normal’ sales went up from 46% in June to 49% in August and September.

Profit margins of Indian businesses remained subdued for a quarter: IIM survey
The survey covered mostly manufacturing companies

Profit margins of Indian businesses have remained subdued for over a quarter now, while fewer reported cost increase above 3% month-on-month in September, according to findings of a survey assessing demand conditions in the economy.

The ‘business inflation expectation survey’ conducted by the Indian Institute of Management, Ahmedabad, for September, covering over 1,600 companies, said share of firms reporting ‘much less than normal’ profit margins remained at 53-54% during July-September, having crossed the 50% mark for the first time in June. “Overall, the profit margin scenario has remained subdued for over a quarter now," said the survey.

The survey covered mostly manufacturing companies.

It found that an increase in cost above 3% was reported by around 45% of the firms in September, down from 46% reported in August, 49% reported in July, and 55% in June.

The survey result provides an indirect assessment of overall demand condition of the economy and complements other macro data required for policy making, it said.

The one-year ahead business inflation expectation remained unchanged at 3.14% in August and September. The proportion of firms perceiving significant cost increase of more than 6% also remained unchanged month-on-month at 23% in September compared with 29% reported in July.

Another survey released on Friday, the seasonally adjusted IHS Markit India manufacturing purchasing managers’ index (PMI), showed that input costs for businesses declined for the first time in over four years. The PMI print also showed that India’s manufacturing output grew at its slowest pace in two years in October, indicating continued weakness in industrial activity in Asia’s third-largest economy, Mint reported on Friday.

The IIM survey said the share of companies that reported ‘much less than normal’ sales went up from 46% in June to 49% in August and September. When this group is taken together with the companies that reported ‘somewhat less than normal’ sales, their combined share stood at 73% in September compared with 77.6% in August. ‘Normal’ is the average of levels of preceding three years.

The Narendra Modi-led government has set a goal of doubling the size of Indian economy to $5 trillion over the next few years. India’s $2.7 trillion economy needs a real growth rate close to 9% in order to reach the $5 trillion-mark by 2024-25, assuming an inflation rate of 4%, according to an analysis by EY.