India Inc. turns cautious on growth, profit outlook amid global uncertainty: HSBC survey

Private sector companies in India have turned more cautious about their business prospects over the next 12 months, with confidence on output and profitability slipping to its lowest level in nearly three years amid global uncertainty following the Middle East conflict, according to the latest HSBC India Business Outlook survey released on Friday.

The survey, compiled by S&P Global, showed the net balance of firms expecting higher business activity over the coming year dropped sharply to 22% in June from 35% in February, marking the weakest level of optimism since October 2023.

The moderation in sentiment comes as businesses anticipate mounting cost pressures and weaker demand. Companies expect higher spending on fuel, energy, raw materials, transportation and wages, while intense competition and price-sensitive consumers are likely to restrict their ability to fully pass on these costs.

Respondents also cited volatile commodity prices, currency fluctuations, uncertainty around government policies and taxation, and the rising costs of adopting greener products and complying with stricter environmental norms as factors weighing on business confidence.

"Optimism among India's private-sector firms about business activity and profitability fell to their lowest levels in nearly three years, weighed down by global uncertainty," said Pranjul Bhandari, Chief India Economist at HSBC.

The survey found that confidence in profitability also weakened to its lowest level in almost three years. However, India continued to outperform global peers, with a profitability net balance of 15%, significantly higher than the emerging market average of 5% and the global average of 9%.

Despite the softer outlook on earnings, businesses remained committed to expanding investments. The net balance for planned capital expenditure rose to 19% in June from 17% in February, while intended spending on research and development more than doubled to 12% from 5%.

Companies said investments would be directed towards new product launches, digital transformation initiatives, artificial intelligence-based solutions, production expansion, new branches, software adoption and geographical expansion.

Hiring intentions, however, weakened during the survey period. The net balance of firms expecting to increase employment fell to 10% in June from 17% in February, reflecting concerns over slower earnings growth and rising operating costs.

"While hiring plans softened in both services and manufacturing, manufacturers remained relatively more upbeat than their services counterparts," Bhandari said.

The survey also indicated that expectations for non-staff cost inflation rose to their highest level since October 2024, driven by anticipated increases in input and operating expenses. Even so, India remained among the least concerned markets globally on this measure, with a net balance of 9%, ahead of only mainland China and Russia.

While expectations for non-staff costs increased, projected staff cost inflation eased sharply, particularly in the services sector. Firms also expected a moderation in output price growth over the coming year.

The HSBC survey noted that business confidence weakened across most major economies after the outbreak of the Middle East conflict, with optimism improving only in Spain and the United States.