IIM-A survey: Profit margins subdued, sales fail to recover, cost pressure builds up

By A Representative
The latest Business Inflation Expectations Survey (BIES), carried by the Indian Institute of Management-Ahmedabad (IIM-A), has suggested that cost perceptions data show some early signs of cost pressures building up, with nearly 50% of the firms believe that the current cost increase is 3.1% and above, as compared to the same time last year. Around 1/4th of the firms perceive the current cost increase in over 6%.
As for the sales perception, the data do not show clear signs of recovery, the survey says, pointing out, in December 2019, around 72% of the firms in the sample reported that sales are ‘somewhat or much less than normal’ as against 68% reporting in November 2019. This proportion has remained around 70% since June 2019, it adds.
Referring to profit margins, the survey says, starting from June 2019, the proportion of firms in the sample reporting ‘much less than normal’ profit margins has remained above or around 50%, adding, overall, the profit margin scenario has remained subdued for over six months.

The survey, begun by Prof Abhiman Das in May 2017, claims to provide “ways to examine the amount of slack in the economy by polling a panel of business leaders”, adding, the monthly survey “asks questions about year-ahead cost expectations and the factors influencing price changes, such as profit, sales levels, etc.”
The questionnaire of BIES is finalized based on the feedback received from the industry, academicians and policy makers, with companies being selected primarily from the manufacturing sector. The results are based on the responses of over 1200 companies.
The survey report says, “One year ahead business inflation expectation, as estimated from the mean of individual probability distribution of unit cost increase, has remained unchanged at around 3.5% during November and December 2019.”

It adds, “Uncertainty of business inflation expectation, as captured by the square root of the average variance of the individual probability distribution of unit cost increase, has declined sharply to 2.00% in December 2019 from 2.39% reported in November 2019.”

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