The Reserve Bank of India today released the June 2016 issue of its monthly Bulletin. The Bulletin includes the Second Bi-monthly Monetary Policy Statement for the Year 2016-17 by Dr. Raghuram G. Rajan, Governor, Reserve Bank of India, Speeches by the Top Management, four Articles and Current Statistics. The four articles are: 1. Industrial Outlook Survey: 2015-16; 2. Inflation Expectations Survey of Households: 2015-16; 3. Finances of Foreign Direct Investment Companies, 2014-15; and 4. Finances of Non-Government Non-Financial Private Limited Companies, 2014-15.
1. Industrial Outlook Survey: 2015-16
Business sentiments show contraction in FY: 2015-16
The survey is one among the five surveys conducted by the Reserve Bank that form a significant input into the monetary policy. Main Findings of the survey are as follows:
- On an annual basis, the 4-quarter average Business Expectations Index (BEI) for FY: 2015-16 stands at 103.4, lower than 105.7 in the previous year. The decline in business situation in FY: 2015-16, as indicated by BEI is seen across all the nine indicators (which constitute BEI).
- Improved sentiments on cost of raw material and cost of finance were observed during FY: 2015-16.
- The sentiments vary among different sized enterprises.
2. Inflation Expectations Survey of Households: 2015-16
The Reserve Bank’s Inflation Expectations Survey of Households captures the inflation expectations of 5,500 urban households across 18 cities for three-month and one-year ahead. This article analyses the changes in households’ inflation perceptions and expectations in recent times especially focusing on the four quarters of the year 2015-16 (Q1: 2015-16 to Q4: 2015-16). The results of this survey are based on replies of the respondents and do not necessarily reflect the perceptions of the Reserve Bank of India.
- Inflation perceptions and expectations of households moderated during 2015-16.
- Percentage of respondents expecting general prices to increase more than current rate gone up from around 34 per cent in Q1: 2015-16 to around 36 per cent in Q2: 2015-16 for three-month ahead period, which declined to around 31 per cent in Q4:2015-16.
- The moderation observed in general price expectations was well spread across various product groups and also across respondents for various occupation, cities covered in the survey.
- Significant variation was observed in inflation perceptions and expectations among various cities.
3. Finances of Foreign Direct Investment Companies: 2014-15
This article presents the financial performance of non-government non-financial foreign direct investment (FDI) companies during the year 2014-15. The data have been compiled based on audited annual accounts of select 3,320 non-government non-financial (NGNF) foreign direct investment companies which closed their accounts on March 31, 2015. The study also presents a comparable picture over the three-year period from 2012-13 to 2014-15 based on the data of common companies compiled for relevant financial year.
- Select FDI companies performed better than non-FDI companies in 2014-15.
- Growth in Gross Value Added of the select FDI companies accelerated in 2014-15, whereas for non-FDI companies, it had decelerated. Similarly, growth in sales and value of production of FDI companies accelerated in 2014-15 vis-à-vis the previous year.
- The growth in operating profit moderated in 2014-15, mainly due to increase in operating expenses. Net profit grew at higher rate in 2014-15 due to significant drop in interest expenses during 2014-15.
- The growth in total earnings in foreign currencies of FDI companies accelerated in 2014-15. However, growth in total expenditure in foreign currencies contracted during the year, mainly due to steep contraction in import.
- Growth in Research and Development expenditure moderated in 2014-15. However, royalty payment grew at a higher rate during the year.
- Profitability ratios as measured by operating profit margin as well as return on equity increased marginally for both FDI and non-FDI companies in 2014-15 as compared to the previous year.
- The leverage ratio (measured as a ratio of total borrowings to equity) of FDI companies declined in 2014-15. Further, debt serviceability as measured by interest coverage ratio had improved in 2014-15 as compared to the previous year.
- The share of shareholders’ fund in total liabilities of FDI companies improved marginally in 2014-15, mainly on account of increase in share capital and the ‘reserves and surplus’. Total net assets expanded at a slower rate in 2014-15 as compared to the previous year on account of moderation in total net assets growth in the manufacturing sector. The share of gross fixed assets in total assets, which was a major component of the total assets, decreased in 2014-15, mainly on account of tangible assets.
- The FDI companies relied mainly on external sources of funds for expanding their business and their share had increased in 2014-15 as compared to the previous year. Funds were predominantly used for gross fixed asset formation as well as in non-current investments. Further, the share of Cash & Cash equivalents in total uses of funds increased significantly in 2014-15 as compared to the previous year.
4. Finances of Non-Government Non-Financial Private Limited Companies: 2014-15
The article analyses the financial performance of Non-Government Non-Financial Private Limited Companies in 2014-15 based on a sample of 2,37,398 companies with audited annual accounts closed on March 31, 2015.
- Sales growth accelerated to 12.0 per cent in 2014-15 from 8.7 per cent in 2013-14. Operating expenses increased by 11.1 per cent in 2014-15 from 8.8 per cent in 2013-14. Operating profit grew at lower rate of 16.6 per cent in 2014-15 as compared with the growth of 23.0 per cent in 2012-13.
- Among the industry groups, sales growth increased for all groups except for ‘Food products and beverages’, Textiles, and ‘Chemicals and chemical products’ industries. Although growth in operating profit declined at the aggregate level, it had increased for large (₹ 1 billion and above) sales size companies.
- Gross value added of the select companies registered a lower growth of 16.9 per cent in the current year as compared with 20.1 per cent in the previous year. The slower growth was mainly accounted by small (less than ₹ 250 million) and medium (₹ 250 million- ₹ 1 billion) sales size companies.
- Profit margin and return on equity (profit after tax to net worth) witnessed gradual increase during the three year study period, i.e., 2012-13 to 2014-15.
- Total borrowings growth of the NGNF private limited companies decreased to 11.6 per cent in 2014-15 as against 19.3 per cent in 2013-14. However, total net assets growth increased to 11.6 per cent in 2014-15.
- The Interest coverage ratio remained at the same level of 3.2 in 2014-15 as in the previous year.
- Debt to equity ratio and total borrowings to equity ratio continued to follow an increasing trend in the study period i.e. 2012-13 to 2014-15.
- Among the industry groups, construction sector registered the highest total borrowings to equity ratio followed by real estate industry in 2014-15. For real estate industry and the construction sector, interest coverage ratio was less than one in 2014-15.
- The companies having interest coverage ratio less than one and debt to equity ratio more than 200 per cent or negative net worth accounted for 11.7 per cent of the total companies and had a share of 36.1 per cent in total bank borrowings of the select companies in 2014-15.
The external sources continued to play a major role in expanding the business of select NGNF private limited companies with their share in total sources of funds marginally declining to 70.5 per cent in 2014-15 from 73.0 per cent in 2013-14. On the other hand the share of gross fixed asset formation in total uses of funds increased to 48.0 per cent in 2014-15 from 32.7 per cent in 2013-14.
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