The manufacturing sector seems to be going through a troubled time as more companies have indicated a ‘much less than normal’ profit margin, according to a survey by the Indian Institute of Management, Ahmedabad (IIM-A).
The latest Business Inflation Expectations Survey (BIES) for the month of September 2018, revealed that 45 per cent of the firms have indicated ‘much less than normal’ profit margins for the month of September 2018. The same was recorded at 42 per cent for the month of August.
“The proportion of firms reporting ‘normal or above normal’ profit has not witnessed a significant change during the last 3 months,” the study revealed. However , the proportion of companies witnessing a squeeze in the profit margins has been growing since June 2018, when 36 per cent companies believed profit margins to be ‘much less than normal’.
The BIES surveys about 1,600 companies, mostly the manufacturing sector. It focuses on four parameters—inflation expectations, costs, sales levels and profit margins—and is seen as an indicator for slackness in the economy.
Uncertainty of business inflation expectation in September 2018 has remained elevated, but marginally declined to 2.15 per cent, the report noted. On cost perceptions, around 64 per cent of the surveyed firms reported more than a 3per cent increase (y-o-y) in costs. The same was 70 per cent in August 2018. The proportion of firms perceiving significant increase in cost has come down to 38 per cent from 41 per cent earlier. For the sales, around 43 per cent of the sampled firms reported ‘normal or greater than normal’ sales in September 2018. The average of last 3 months was 45-46 per cent.
Started in May 2017, this monthly survey goes straight to businesses, the price setters, rather than to consumers or households, to understand their expectations of the price level changes. Results of this survey are useful in understanding the inflation expectations of businesses and help in policy making.