Biz sentiment hit two-year high in Q2 as Covid second wave eased off: NCAER

The index was also higher over these periods for the consumer durables, consumer non-durables, intermediate goods, capital goods and services industries
As the second wave of Covid-19 eased off, business sentiment in the country hit an over two-year high in the September quarter (Q2) of the current financial year (FY22), according to a survey by the National Council of Applied Economic Research (NCAER).

The NCAER Business Confidence Index (BCI) increased by about 80 per cent to 117.4 in Q2FY22 from 65 in the year-ago quarter, while it jumped about 90 per cent on a quarter-on-quarter basis. The index was also up 13.8 per cent over the pre-pandemic period of the second quarter of 2019-20, when it stood at 103.1. However, companies were apprehensive about the rising costs of raw materials.  

The index showed improvement -- sequentially, year-on-year, as well as compared with the pre-Covid period -- in all the four parameters that it is based on: Whether the overall economic conditions will be better in the next six months, financial conditions of the firms will improve in the next six months, present investment climate is positive, and present capacity utilisation is close to or above optimum level.

The index was also higher over these periods for the consumer durables, consumer non-durables, intermediate goods, capital goods and services industries. The BCI was the highest for consumer non-durables at 123.9, and the lowest for capital goods at 111.4. Services, which were battered by Covid-induced lockdowns for most of the first quarter, showed the BCI at 115.4.

Against the popular notion that micro, small and medium-sized enterprises (MSMEs) were not in a proper shape even after the Covid-induced lockdowns were relaxed, the NCAER survey showed that all sizes of firms had a higher confidence index quarter-on-quarter, year-on-year, and compared with the pre-pandemic period. Only firms with annual turnover of more than Rs 500 crore showed the index at a lower level during Q2FY22 compared with the pre-Covid level.

Poonam Gupta, director-general, NCAER, said, “The current survey points to a recovery in business sentiments post the second wave of the pandemic. The recovery is broad-based across firm size, ownership, and industrial sectors.”

All regions, except the west, experienced an improvement in business sentiments. The BCI of the west fell by 9.5 per cent in Q2 compared with the first quarter. However, it was higher by 151 per cent from the year-ago period. Compared with the pre-pandemic period of the second quarter of 2019-20, the index was lower by 22 per cent.

Sentiments improved sequentially in Q2FY22 with regard to production, domestic sales, exports, new orders, imports of raw materials, and pre-tax profits. Sentiments about costs, especially ones related to raw materials, remained elevated with two-thirds of the firms expecting the costs of raw materials per unit of output to go up in the next six months as compared to the 54 per cent reporting so in the first quarter.

The Political Confidence Index (PCI), which measures the confidence of the firms about the Centre's management of key economic parameters, rose to 117.4 after staying below 100 since the fourth quarter of 2019-20.

However, the PCI for "managing inflation" was lower in the second quarter compared with the pre-pandemic level. This is probably due to the elevated sentiments regarding the cost of raw materials, said the NCAER.  

The BCI is based on a business expectations survey conducted by the NCAER with a sample size of 500 firms of various sizes. The survey elicited responses from these firms in six cities -- Delhi-NCR, Mumbai, Pune, Kolkata, Bengaluru, and Chennai.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel