Rate cuts from the Reserve Bank of India gave businesses a nice boost in sentiment this month.
MNI, a unit of Deutsche Borse Group, said its monthly index of business confidence in India climbed 7.7 per cent in June to 67.1, offering "a tentative sign that the downturn in business sentiment may have bottomed."
The results were considerably more optimistic than the May figures, which showed business sentiment was actually weaker last month than when when business-friendly Narendra Modi was elected at Prime Minister a year earlier.
MNI attributed the boost to an early June interest rate cut from the RBI — the third this year.
"Previous rate cuts have provided short-term boosts, but the magnitude of this month's increase [in confidence] suggests that the aggregate easing to date is starting to have a positive impact. Firms reported increased access to credit and many reported that they were benefiting from lower interest rate costs," MNI said.
The component tracking export orders jumped 13.2 per cent, while production rose 6.3 per cent and new orders, a forward-looking component, picked up 8.2 per cent. MNI said this is all good news for employment:
More companies thought the size of their workforce was insufficient for their requirements and they were also more optimistic about hiring in the coming three months.
MNI chief economist Philip Uglow said the weakening rupee was also playing a role to help exporters. More gains ahead look probable.
It would be unwise to read too much into one month's data but the brighter tone of the June survey provides an early signal that the trend decline in sentiment since peaking in September last year may have run its course.
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