Industry confidence fell sharply in the second quarter
MUMBAI: Industry confidence It has fallen sharply in the quarter ended September 2019 to the lowest level in six quarters. According to a report by the CARE rating agency, its confidence index has dropped sharply due to the negative responses on income expectations, pricing power, changes in ratings and interest coverage.
Expectations are more negative with respect to income, ratings and interest coverage. The only area where there has been a net positive response is in the operating margin expectations.
The general confidence index that stood at 118.4 in Q1FY19 fell to 114.9 in Q2FY19 and fell further to 108.6 in the third quarter of FY19. The fourth quarter saw a surge in sentiment with the index improving to 110.1.
However, since then there has been a strong deterioration in sentiment with the index falling to 93.4 in Q1FY20 and further down to 80.6 in Q2FY20.
CARE Ratings has come out with the index based on a survey of analysts that tracks 46 industries. The response is improved, worsened or remains the same according to predefined criteria. The index is based on the net responses obtained from the difference in the percentage of respondents who expect an improvement in the percentage of those who expect deterioration.
“The net response for the revenue parameter was 57% during Q2FY19, which indicated a greater proportion of industries that reported positive revenue growth in that quarter. But the same for Q2FY20 is -54%, which indicates a decrease of 103 percentage points during the last year and a decrease of 41 percentage points after Q1FY20, ”said Madan Sabnavis, chief economist at CARE, in the report.
The index for Q2FY20 confirms the current economic recession and its impact on various parameters in industries, he added.
The interest coverage index, in which the majority of respondents were pessimistic, reflects the debt service capacity or the improvement or decrease of financial costs for the industry. The modified CARE Rating credit index shows that there may be more rebates. The modified credit ration (MCR) informs in advance if the industry has performed well in terms of the rating changes. Here, CARE's own MCRs are used to measure to what extent confidence levels are better or worse. The factors that are taken to reach a perspective include, but are not limited to: impact of currency movements, commodity prices, local and global policies, capacity addition and utilization.