Increased costs 'adversely' affect Indian business profit margin: IIM-A survey

Costs per unit compare with this time last year: % responses

By A Representative
The Indian Institute of Management-Ahmedabad’s Business Inflation Expectations Survey (BIES), which seeks to examine the amount of slack in the economy by polling a panel of business leaders about their inflation expectations in the short and medium-term, has said that even as one year ahead business inflation expectations in November 2020 have "increased sharply" by 50 basis points to 4.28% from 3.78% reported in October 2020, “The cost perceptions data indicates a further hardening of cost pressures.”
The the latest round, carried out in November 2020, was the 43rd round of the BIES survey. The results are based on the responses of around 1,100 companies.

The BIES report said, “Around one third of the firms perceive significant (over 6%) cost increase. About 17% of the firms perceive that costs have increased very significantly (over 10%)”, adding, “Over 58% of the firms find that the current cost increase is ‘3.1% and above’ as compared to the same time last year – further up from 55% reported in October 2020. This is primarily driven by the firms indicating very significant cost increase (over 10%).”

Profit margins: % response

The report further said, “Expectations on sales have improved – reflecting improved demand conditions. For the first time in the year 2020, about one third of the firms report that sales are normal or above normal.” However, it added, “Firms’ expectations of ‘about normal’ or greater profit margin has not improved. Over 37% of the firms in November 2020 report that sales are ‘much less than normal’ as against 46% firms reporting in October 2020.”
Noting that “overall, while sales have further improved, the profit margin is adversely affected by increased cost concerns” the report said, “Over 47% of firms in the sample in November 2020 report ‘much less than normal’ profit – up from 40% reported in October 2020. Firms’ expectations of ‘about normal’ or greater profit margin has not improved in this round of the survey.”

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