Private sector companies in India witnessed a decline in confidence regarding their output prospects in October, as indicated by the S&P Global India Business Outlook survey. Despite the ongoing optimism about securing new projects and maintaining profitability in the coming year, the survey underscored emerging concerns related to potential growth slowdown, subdued job creation, and cautious investment plans.

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As per the survey, the net balance of +17% among panelists foreseeing growth marked a notable decrease from the +26% reported in June, signaling the lowest figure in the past two years. Among the ten countries with comparable data, only Russia and the US recorded improvements, while India lagged behind the emerging market and global averages.

A significant divergence emerged between goods producers and service providers, with the former maintaining a comparatively higher level of optimism despite both sectors experiencing a downturn in growth prospects. The respective net balances fell from +30% and +24% to +20% and +16%.

Job creation forecasts reached a two-year low, particularly in the service economy, where only 2% of firms reported plans to hire additional staff. In contrast, confidence among goods producers remained relatively stable, with a net balance of +9%.

While the survey indicated stable R&D investment budgets overall, it unveiled sectoral disparities. Optimism strengthened among manufacturing firms, while their services counterparts turned pessimistic. Capital expenditure plans for the next 12 months declined, with the net balance falling from +16% in June to a two-year low of +11% in October. Manufacturing firms displayed higher growth plans compared to services, with respective readings of +21% and +7%.

On the cost front, non-staff cost inflation expectations have barely moved since June, registering a net balance of +9% in October. Labor cost inflation expectations reached a two-year low, further indicating a degree of stability. Predictions of cost inflation stability in the year ahead, coupled with a commitment to maintaining competitiveness, prompted downward revisions to pricing policies. The aggregate net balance fell from +17% in June to +11% in October, the lowest reading since June 2021, with only China recording a lower figure at +3%.

Despite these challenges, Indian firms expressed confidence that their businesses would remain profitable in the year ahead. However, the overall degree of optimism has waned since June, with the net balance of optimists outstripping pessimists at +11%, down from +18%. While this figure is the lowest in two years, it still compares favorably with readings for emerging markets and the global average at +10% and +9%, respectively.

Analysts advise traders to remain nimble in response to the Federal Reserve's reactions to the unfolding economic challenges. Neelkanth Mishra, chief economist at Axis Bank, advises that traders must be nimble like players in a game of chess and respond to the Fed’s reaction to the imminently unfolding slowdown and other problems. Investors must stay invested but have to get accustomed to lower valuations of 16–17 times versus the current 20 times.

Neelkanth expects a long-term correction in the stock market. This means he sees the indexes and stock prices not rising much, with higher EPS growth getting neutralised by falling P/E.

In fact, unlike many economists who see India’s near-term growth at 6–6.5%, Neelkanth sees the Indian economy growing by 7% over the next five years given the improvement in labour productivity and investments in infrastructure.

(Edited by : Ajay Vaishnav)