Indicators poor, but India is hopeful

New Delhi/Mumbai: After a continued to decline in manufacturing output, the services sector activity contracted for 10th straight month in April. Despite the dismal numbers, the hope appears to be buzzword for businessmen, traders, CFOs and analysts.

According to HSBC, Purchase Mangers Index for services in India is still below 50 points — the red line which hints at the contraction.

However, it rose to 48.5 in April from 47.5 in March, but was still below the 50-mark.

The services sector accounts for around 60 per cent of India’s GDP. HSBC pinned hope on the new government to improve the sentiments.

It said that the weak growth is the result of the lingering structural constraints, which may only be lifted very gradually after the elections.

Chief financial officers, however, are quite optimistic about an improvement in the overall macro-economic conditions, despite overall bad macro numbers.

According to a survey done by Dun & Bradstreet, around 44 per cent of the chief financial officers (CFOs) expect liquidity position of their company to increase and around 45 per cent expect availability of funds in the market to improve.

However, they remain cautious regarding the financial performance at the company level as 54 per cent expect no change in the level of financial risks on the company’s balance sheet and 52 per cent expect no change in the risk appetite during Q2, 2014.

The survey pointed out that nearly half of the surveyed CFOs expressed optimism regarding the macro economic scenario for the Indian corporates as they believe economic conditions to remain favourable during Q2, 2014 while 46 per cent revealed that they expect macro economic scenario at the global level to be favourable.

Dun & Bradstreet pointed out that recent project clearances by the Cabinet Committee on Investment and Project Monitoring Group has also played a significant role in boosting optimism level among CFOs.

HSBC, however, expects the new government to take the economy back on track. “Elections are partly to blame for the weaker demand, but deeper rooted fundamental weaknesses are the main culprit for the soft growth backdrop,” said HSBC.

It said that a new government can bring about change, but not overnight.

“Any recovery will prove very protracted. Tighter monetary and fiscal policies needed to address macro-economic imbalances will pose headwinds near term. Moreover, high corporate leverage and a deterioration of banks’ asset quality are also constraining factors,” it said.

In its latest economic outlook, the Paris-based think tank OECD said growth in Asia’s third-largest economy was expected to edge up to 4.9 per cent in calendar year 2014 from 4.5 per cent a year earlier and accelerate further to 5.9 per cent in 2015.

The estimates are predicated on hopes of an upturn in capital investments after an ongoing national election and a boost in consumption driven by slowing inflation.

“Investment is to rebound after the spring general elections and as large investment projects recently approved by the Cabinet Comm-ittee on Investment are gradually implemented,” the Paris-based OECD said in its report.

The report urged India to carry out pending labour, fiscal and tax reforms for a faster economic revival.

It also backed a RBI panel’s proposal for moving to an inflation target of four per cent in three years.