IMA’s Q4FY21 BCPI survey and perspectives from IMA’s Forum members

The Indian economy is recovering faster than expected, and this reflects strongly in IMA’s fourth-quarter FY21 (Jan-Mar) Business Confidence and Performance Index (BCPI) survey. Across sectors, companies are seeing a jump in sales, new orders, profitability and capacity utilisation, as also net new hiring, investments and discretionary spends . At recent joint webinars of IMA’s Forums, we presented the main findings of the latest BCPI edition, followed by an open-house discussion among members about the state of their businesses. This paper captures the main takeaways from these discussions.

Business confidence indices are all up sharply…

The headline BCPI index, which touched a multi-year high of 68.7 in October, rose further to 73 in our January 2021 edition. This mirrors the optimism stemming from a ‘flattening of the viral curve’ and the onset of a national vaccination drive.

  • The macro-economy sub-index has gone past 80, business performance is at around 70 and even the capex outlook has turned net-positive (>50) after a year’s gap.
  • Revenue growth is picking up, with the average company expecting 5.6% growth in the second half of FY21, up from minus 10.7% in H1.
  • Profit growth is expected to follow a similar trajectory, going from -9.7% to 5.6%.
  • In terms of net new hiring, 38% expect it to strengthen this quarter, up from 28% in Q3.
  • Compared to Q1(Apr-Jun), when everyone was slashing ‘discretionary spends’ like advertising/marketing, employee welfare/team-building and travel, between a quarter and half of all companies expect to ramp up such spends in Q4.

...but it remains to be seen how sustainable this is

Though clearly positive, these numbers may reflect a degree of ‘irrational exuberance’:

  • So far, most of the ‘improvement’ is on a QoQ rather than a YoY basis and many businesses remain some distance away from their pre-Covid ‘normal’.
  • The average company estimates the ‘recovery time’ to ‘normalcy’ (90% of FY19 levels) at 13.5 months (measured from the start of lockdown), i.e. May 2021.
  • These timelines have continued to stretch out with each survey round, from 10.7 months in Q2 (July) and 11.6 in Q3 (October). Industrial B2Cs are currently the most optimistic and closest to normalcy, while services-oriented B2Cs have the longest road to recovery estimated at 16.6 months.
  • While 58% of businesses plan to make new investments in Q4 – the highest ratio in over a year – expectations on this score often over-shoot reality.
  • 71% of companies say that the economy is stronger today than 3 months ago, but just 46% say that it is stronger YoY. This may suggest that the recent uptick in key BCPI indicators could prove temporary. The real test of sustainability will be evident in a quarter or two.

Auto sales have jumped globally…

…automation efforts are picking up…

…as are sales of agrochemicals and FMCG

Hospitals are back up to 80-85% levels…

Residential real estate is recovering better than commercial

Demand for DTH services have remained close to normal

Home loans are picking up, as are certain other segments of retail lending

The last quarter has infused new vigour into most businesses as they seek to get back to ‘business as usual’ (BAU) and achieve the best of both worlds by adopting hybrid work models. Sectoral experiences, though, have varied widely:

  • Global auto sales were expected to drop from 95 million in 2018 to 67 million in 2020, but actual sales outperformed, coming in at 73 million. In fact, the industry is on course to regain its 2018 levels well ahead of the forecast date of 2025. 2021 itself may see 92 million vehicles sold. However, a global shortage in semi-conductors is expected to impact top-line growth in the auto sector this year.
  • Many industries have accelerated their automation efforts, including through robotics and IoT. A service provider in this space has seen a jump in sales to auto, speciality chemicals, pharma and life sciences, even as investments by petrochemical refineries continue to lag. It expects to regain its FY19 sales levels in the coming 8-10 months.
  • Agrochemicals and animal feed are seeing a boom on account of last year’s good monsoon, which has yielded bumper output in both the winter and summer crops.
  • FMCG, including packaged foods, has seen a surge in demand since the lockdown. The grocery and modern-format segments are only just limping back to normalcy but in the interim, e-Commerce has made significant gains. Muted commodity-price inflation has helped shore up margins, and new product launches have continued. However, Q4 of FY21 and Q1 of FY22 will really determine if consumer demand has truly recovered. One FMCG firm estimates its current revenue at 80% of pre-Covid levels.
  • Hospitals, which saw a steep drop-off in OPD visits and elective surgeries at the start of the pandemic, are back up to 80-85% levels. Partly, this is on account of them finding innovative ways to engage with their clients. One hospital has built an app that allows patients to report their problems in advance; schedule home-visits for any necessary tests; and then connect virtually with the doctor. The success of this initiative led the hospital to decide to permanently shift at least 50% of its OPD consultations to this virtual mode.
  • Real estate is a mixed bag. While the residential side has picked up, commercial leasing has become a challenge with tenants renegotiating their rent. That said, there is now increased traction on the commercial side as well, with many companies seeking to buy smaller office-spaces.
  • A paper manufacturer has had serious challenges with its global supply chains owing to a shortage of containers for export/import. Demand for paper with end-use in FMCG and pharmaceuticals has picked up but that for printing/writing paper has dried up with most offices operating below capacity.
  • DTH service providers report operating at close-to-normal levels both during and after the lockdown. One company reports a certain degree of optimisation in rural areas but a surge (despite an OTT viewership surge) in the urban market. In fact, OTT viewership seems to be complimenting TV viewership, with people watching on multiple screens and for more hours each day.
  • Housing finance has recovered strongly, bolstered by a jump in demand for residential mortgage finance across cities; falling interest rates/EMIs; stamp-duty cuts in both the affordable and the middle-market segments; and a greater willingness among builders and other sellers to cut prices.
  • Retail credit has picked up but credit to industry has been shrinking – the result of massive deleveraging across the banking sector. From a 40:60 retail:wholesale mix, retail now accounts for 60-65% of all lending. Auto loan disbursements are currently ~10% higher than pre-Covid levels; agri-rural and MSME lending has picked up; credit-bureau inquiries are up; but unsecured lending (such as credit-card and personal loans) is 30% lower than before Covid. NBFCs offering gold loans have done well. Gold prices have surged from USD 1,400 a year ago to over USD 1,800 today, thus driving up the value of the underlying collateral and reducing customers’ propensity to default.
  • Property and casualty reinsurance, which was growing at a healthy 10-12% clip pre-Covid, took a hit, particularly in the B2C/retail-space segment. One reinsurer used the pandemic as an opportunity to weed out poor risks, improve risk quality and focus on growth and profitability by streamlining its operating models.