NCAER study says business sentiment hit at two-year high in Q2

Business sentiment in the country reached a two-year high in the September quarter (Q2) of the current fiscal year (FY22) as the second wave of Covid-19 faded (NCAER), according to a study conducted by the National Council of Applied Economic Research.

The NCAER Business Confidence Index (BCI) grew by almost 80% to 117.4 in Q2FY22 from 65 the previous quarter, and it increased by about 90% quarter-over-quarter, the Business Standard reported. The score was also up 13.8% from its pre-pandemic level of 103.1 in the second quarter of 2019-20, it added.

All four parameters, on which the index is based, improved sequentially, year over year, and compared to the pre-Covid period: whether overall economic conditions will improve in the next six months, firm financial conditions will improve in the next six months, the current investment climate is positive, and current capacity utilisation is close to or above optimum level.

Consumer durables, consumer non-durables, intermediate goods, capital goods, and services industries all had higher indices during these time periods. Consumer non-durables had the highest BCI of 123.9, while capital goods had the lowest at 111.4. The BCI was 115.4 for services, which had been hammered by Covid-induced lockdowns for most of the first quarter.

Business mood

Despite the common belief that MSMEs were still in bad health after the Covid-induced lockdowns were lifted, the NCAER poll found that all sizes of businesses had a stronger confidence index quarter over quarter, year over year, and when compared to the pre-pandemic period. Only companies having annual revenue of more than Rs 500 crore had a lower index in Q2FY22 than in the pre-Covid period.

The Business Standard quoted Poonam Gupta, director-general, NCAER, as saying, following the second wave of the pandemic, the current survey indicates a recovery in business sentiment. The rebound is widespread, spanning all business sizes, ownership types, and industrial sectors.

With the exception of the west, all regions saw an improvement in business sentiment. In the second quarter, the west’s BCI declined by 9.5% compared to the first. It was, however, up 151% from the previous year’s figure. The index was down 22% in the second quarter of 2019-20 compared to the pre-pandemic period.

In Q2FY22, sentiment improved sequentially in terms of production, domestic sales, exports, new orders, raw material imports, and pre-tax profits. Cost concerns, particularly those related to raw materials, remained high, with two-thirds of enterprises anticipating raw material costs per unit of output to rise in the next six months, up from 54% in the first quarter.

The Political Trust Index (PCI), which gauges enterprises’ confidence in the Centre’s management of key economic factors, rose to 117.4 in the fourth quarter of 2019-20 after remaining below 100 since the fourth quarter of the previous year.