As an indication of receding pessimism about the business performance amid Covid-19 outbreak in the country, the latest Business Inflation Expectations Survey (BIES) shows businesses reporting steady improvement in sales.
The survey for August reveals Covid-19 led pessimism about business performance has start easing with steady improvement in sales. The survey found “around 82 per cent of the firms in the sample still report that sales are 'somewhat or much less than normal'. This proportion was over 93 per cent in March 2020.”
Similar sentiments are expressed for profit margin, for which the firms are moving from ‘much less than normal’ profit to ‘somewhat less than normal’ profit category gradually.
Outlook on CPI headline inflation
The survey released by the Indian Institute of Management, Ahmedabad, is based on the responses from around 1,100 companies primarily from the manufacturing sector. It tracks business sentiment, expectations and confidence every month since May 2017.On the CPI headline inflation outlook, the survey reveals a steady increase in one-year ahead CPI headline inflation expectation.
It has remained above 4 per cent since February 2020. The businesses in August 2020 expect one year ahead CPI headline inflation to be 4.37 per cent, marginally up from 4.30 per cent reported in June 2020, with a relatively low standard deviation of around 1.1 per cent, the survey revealed.
“Respondents were also asked to project one year ahead CPI headline inflation through an additional question using a probability distribution. This question is repeated every alternate month, coinciding with the month of RBI’s bi-monthly monetary policy announcement,” the survey explanation said.
Increased sales
On the cost aspect, the perceptions data shows marginal increase of cost pressures."Over 59 per cent of the firms in August 2020 report that sales are ‘much less than normal’ as against 66 per cent firms reporting in July 1." This proportion is gradually declining from March 2020, when it was 80.59 per cent.
While there seems to be steady improvement of sales, around 82 per cent of the firms in the sample still report that sales are ‘somewhat or much less than normal’. This proportion was over 93 per cent in March 2020, the survey said.
The explanation of Normal term is given as compared to the average level obtained in the preceding three years.
The perception about profits is also positive over the worst period of March 2020. "Over 57 per cent of firms in the sample in August 2020 reported ‘much less than normal’ profit as against 62 per cent in July 2020. Firms are moving from ‘much less than normal’ profit to 'somewhat less than normal’ profit category gradually," it said.
BIES asks questions about year-ahead cost expectations and the factors influencing price changes, such as profit, sales levels, etc.