07 May 2018 20:58 IST

Corporate outlook still pessimistic, says IIM-A study

Belying perceptions, companies report squeezing of profit margins, while sales remain less than normal

A study conducted by Indian Institute of Management Ahmedabad (IIM-A) showed a persistent pessimism among corporate India about subdued sales conditions.

The Business Inflation Expectations Survey (BIES) was conducted on 1941 companies (mostly in the manufacturing sector) in March 2018. As many as 28 per cent of the firms polled reported that sales were ‘much less than normal’ in the month of March 2018, highlightingd that this was the case over the last four months. “Over half of the firms in the sample continue to report that sales levels are much or somewhat less than normal,” the report noted.

The pessimism was also reflected in the responses on profit margins, as around 44 per cent of the firms indicated ‘much less than normal’ profit margins, belying the general perception of an improving corporate environment. “Over 65 per cent of firms continue to report squeezing of margins. This proportion has remained stable during last four months. Perception of higher profit margins in the current economic conditions is not supported by the data,” the report added.

The March 2018 survey also projected the expectations of business inflation one year ahead. This was calculated from the mean probability distribution of unit cost increase and placed it at 3.73 per cent, showing a decline from 3.85 per cent observed in February 2018.

The data also does not indicate significant increase in costs.

What is BIES

BIES provides ways to examine the amount of slack in the economy by polling a panel of business leaders about their inflation expectations in the short and medium term. This monthly survey asks questions about year-ahead cost expectations and the factors that influence price changes, such as profit and sales levels.

The survey is unique in that it goes straight to businesses, the price-setters, rather than to consumers or households, to understand their expectations on price-level changes. It gives a probabilistic assessment of inflation expectations and thus, involves a measure of uncertainty. It also provides an indirect assessment of overall demand conditions in the economy.

IIM-A had introduced the BIES from May 2017. BIES-March 2018 is the 11th round of the survey.

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