RBI Forward-looking Survey for FY2021–22 (Part — 2 of 2)
This is the second part of a two-part article where we will derive the insights from the RBI’s survey & try to predict the business opportunities that could emerge across various industry verticals. In the first article, we have covered the insights from the surveys of — Consumer Confidence, Household Inflation Expectations, & Order Books, Inventories & Capacity Utilization Survey (OBICUS). You can find the first article — here.
For the scope of this article, we are covering the following surveys — Industrial Outlook of Manufacturing Sector, Professional Forecasters on Macroeconomic Indicators, Bank Lending & Service Sector.
Industrial Outlook Survey of the Manufacturing Sector
The motive to conduct this survey
This survey intends to gauge the Business sentiments of manufacturing sector companies. Special focus is given to the Business Assessment Index (BAI) — which gauges the real business outcome of companies, & the Business Expectation Index (BEI) — which is a forward-looking indicator.
Inference
1. Manufacturing sees improvement in key demand indicators
2. Increase in Capacity Utilization — More Investment could be expected
3. Input cost will push the end price for the customers (Commodities & other raw materials)
Hence, As the BAI & BEI both showing a V-shaped recovery from the march bottom, then it could be safe to assume that going forward we can see the capital investments by the manufacturing sectors company to mitigate the upcoming demand. The expected demand could be significantly higher in the range of Q3 — Q4 of FY 2017–18, as suggested in Chart 1.
Survey of Professional Forecasters on Macroeconomic Indicators
The motive to conduct this survey
This survey intends to gauge the sentiments of Professional Forecasters regarding the expected GDP growth rate for FY2021–22. Special focus is given to the probability distribution of the GDP estimates by the professional forecasters. The below chart 2 shows the probability distribution of the same:
Important Abstracts from the survey
CPI inflation excluding food and beverages, pan, tobacco and intoxicants and fuel and light, is expected at 5.4 per cent during Q4:2020–21 and moderate thereafter to 4.9 per cent by Q3:2021–22
Inference
1. GDP may rise by 8.5–9% in FY21–22
2. Consumption will see a spike — expected growth 11–12%
3. Gross Capital formations — expected growth 12–13%
4. Service Sector Growth — 10%
5. Agricultural Industry — 3.1–3.4%
6. Gross Savings (% of GNDI) — 28–29%
Bank Lending Survey
The motive to conduct this survey
This survey intends to gauge the Business sentiments of the Banking sector. Special focus is given to loan demand across the sectors to form a holistic view of economic revival. To kick start any economy from the recession is it crucial that banks start lending at a higher pace so that the consumer can be once again revived & it will subsequently make a market for producing side industry to start production. The below chart 1 shows the Net response percentage of ‘Expectation’ going forward & the current state of business — as ‘Assessment’.
Inference
1. Banks expect further sequential improvement in loan demand conditions across all sectors
2. Easy loan term and conditions are expected to continue in the first half of 2021–22
Hence, If the Assessment & Expectation net response percent trend shows a sharp then we could expect that the Banks are lending at a higher level, even more, than the pre-pandemic level, & will continue to so for foreseeable future. The only matter of concern is the asset quality of these loans — The shortage of business orders could be the reason behind this pick in current lending rise. But only as the future unfolds the quality of the assets could be determined.
Service Sector Survey
The motive to conduct this survey
This survey intends to gauge the Business sentiments of Service Sector companies. Special focus is given to the Business Assessment Index (BAI) or ‘Assessment’ — which gauges the real business outcome of companies, & the Business Expectation Index (BEI) or ‘Expectation’ — which is a forward-looking indicator.
Inference
1. Services sector companies expect further improvement in turnover in Q4:2020–21 (Chart 1)
2. Outlook on major business parameters, except input costs, improved further
3. Companies expect a rise in both selling prices and input costs, resulting in a marginal gain in profit margins
Hence, If the Assessment & Expectation net response percent trend shows a sharp then we could expect that the Service Sector will continue to perform well. The sector is also enjoying a tailwind because the rest of the other sector requires digital transformation to continue to perform in this post-pandemic world where remote working is the new norm. Thus we can expect going forward more investment could be done by most of the companies from other sectors to become digitally resilient.
Conclusion: In this article, we have seen the consumer & Industry expectation for the upcoming financial year. The overall expectations seem positive for the short term period (if not in long term), thus we can see the inflows of FDIs & FIIs going forward also.
Disclaimers: All the images used in the article are taken directly from the RBI’s website.
References:
1. Home page https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=51085
