As an indication of improving profitability, more companies report profits returning to normal after about five months since the devastating second wave of Covid-19 in April-May. The October Business Inflation Expectation Survey (BIES) by the Indian Institute of Management Ahmedabad (IIMA), showed as many as 19 per cent of the respondent companies reporting 'about normal profits'. The number had dipped to 10 per cent during May and June - the peak months of the Second Wave.
The 54th round of monthly survey, which is based on the responses of around 1,200 companies, also revealed that the share of companies reporting 'much less than normal' profits has drastically come down from 60 per cent in May to about 45 per cent in October. And 26 per cent companies reported 'somewhat less than normal profits' for October. This means, a larger portion of companies still face pressure on profit margins even as supply concerns and cost pressure have eased.
On cost perception, a mixed response was observed from the companies. “There is a decline in number of firms perceiving very high cost increase (over 10 per cent). Still around 1/3rd of the firms are reporting more than 10 per cent cost increase,” the study findings revealed.
Further, the number of companies perceiving significant cost increase (over 6 per cent) was recorded at 59 per cent, even higher than 56 per cent recorded during May 2021.
On sales sales expectations, a greater number of companies have reported marked recovery. For the October month, 29 per cent of the companies have reported that sales are “much less than normal,” this was 33 per cent in September 2021 but 52 per cent in May 2021.
“There is a sharp increase in number of firms perceiving greater than normal sales. Qualitatively, sales expectations are back to May 2019 level,” the survey findings reported.
The one year ahead business inflation expectations in October 2021, as estimated from the mean of individual probability distribution of unit cost increase, have declined by 28 basis points to 5.47 per cent from 5.75 per cent reported in September 2021.
The trajectory of inflation expectation during the current fiscal so far has been on an upward trend.
“The uncertainty of business inflation expectations in October 2021, as captured by the square root of the average variance of the individual probability distribution of unit cost increase, has remained elevated at 2.2 per cent,” said the survey.
On the consumer price index (CPI) CPI headline inflation, the survey indicates an increase in one year ahead CPI headline inflation expectation. “The businesses in October 2021 expect one year ahead CPI headline inflation to be 5.06 per cent, marginally up from 4.98 per cent reported in August 2021, with a relatively low standard deviation of 1.02 per cent.
It has remained above 5 per cent since June 2021, the findings noted.