Business prospects in manufacturing deteriorated in Q3; outlook for Q4 dims too: RBI

Business prospects in the manufacturing sector worsened in the third quarter of the fiscal ended December 31, 2014 and the outlook for the current quarter does not too promising either, according to an industry survey by Reserve Bank of India (RBI).

The quarterly survey, which captures assessment of the business across various parameters in the immediate quarter besides expectations for the coming quarter, compiled responses from 2,088 manufacturing firms.

“Manufacturing companies are witnessing some moderation in demand (both domestic as well as external) as reflected in decline in order books and accumulations of inventories (both raw material and finished goods). As a result, net response for production also moderated though it remained in positive terrain,” RBI said.

As a result, business outlook of the Indian manufacturing sector, as inferred from movements in Business Expectation Index (BEI) also moderated on a sequential basis for both expectation and assessment period, it added.

BEI is a composite indicator calculated as weighted net response of nine business parameters. It gives a single snapshot of business outlook in every quarter. BEI lies between 0 to 200, and 100 is the threshold separating expansion from contraction

BEI for the assessment quarter or for Q3 FY15 declined to 104.6 from 106.3 in Q2 and 105.2 in Q1, marking the lowest level in the current fiscal. However, it was higher compared with 98.8 in the same quarter in the previous year.

Moreover, BEI for the current quarter based on expectation of the business outlook in the coming quarter declined to 115.6 from 117.7 in Q3 as per the previous quarterly survey. Although, the outlook for the sector declined sequentially, it is still among the highest in the past one year.

Meanwhile, in a separate Order Books, Inventories and Capacity Utilisation Survey (OBICUS) for the second quarter ended September 30, 2014, RBI found that capacity utilisation rose marginally after slipping to the lowest level in almost three years.

However, new orders declined in Q2 FY15 on a year-on-year basis and grew at lower rate of 5.6 per cent compared with previous quarters.

The finished goods inventory to sales ratio remained flat in Q2 at 18 per cent, down from its level of the same quarter of the previous year. The raw material inventory to sales ratio declined during the quarter on both q-o-q and y-o-y basis.

(Edited by Joby Puthuparampil Johnson)

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