C-suite execs see modest demand momentum over next 12 months

Mumbai: Growth outlook seems to be getting bleaker as sluggish demand, low capex and falling exports making C-suite executives including CEOs and CFOs expect only modest demand momentum of up to 10 per cent over the next 12 months.

According to a survey by the global brokerage firm UBS of 267 C-suite executives (including CEOs and CFOs) in July 2019 to gauge the views of broader India Inc revealed growing negative growth outlook among corporates.

Only one-third of the respondents expected double-digit growth in overall demand. And considering a sharp growth slowdown, they are not seeing any pressing need to undertake fresh investments to add capacity.

The survey indicated only 15 per cent of firms needed new investment to expand capacity in the past 12 months despite increased capacity utilisation. Nearly 48 per cent of the surveyed firms expect capex requirements either to remain broadly the same or increase modestly, less than 5 per cent, over the next 12 months.

Similarly, nearly a third of firms expect export demand to pick up rather modestly, at 5-10 per cent, and 22 per cent expect export growth to be less than 5 per cent. Our base case is that recent policy responses and possibly more ahead should help arrest the negative feedback loop. The UBS India financial conditions index suggests that growth likely toughed in the June 2019 quarter, but we think the recovery cycle will be elongated and below market expectations, the report by Tanvee Gupta Jain, Economist, UBS Securities India and Gautam Chhaochharia, Analyst, UBS Securities India said.

The UBS Evidence Lab survey showed that almost half of respondents expect CPI inflation to remain in the 4+/-2 per cent inflation target band set by the RBI, while 30 per cent of respondents foresee it above 6 per cent in the next 12 months. On average, inflation expectations are somewhat higher than actual levels of headline CPI inflation seen recently but lower than what the RBI's household inflation expectations survey suggests. Thus, 28 per cent of firms expect rates to remain unchanged, while 13 per cent expect interest rates to fall by up to 50bps. Notably, 22 per cent of firms still foresee rates rising by up to 50bps over the next 12 months. Overall, on average, corporate expectations are for a stable or marginal increase in interest rates over the next 12 months.