Mid sized cos bullish on profitability, economic conditions: J.P. Morgan survey

Mid sized companies, or those with annual revenues in the range of 100 8,000 crore, have exuded optimism in the domestic business environment, expecting a jump in profits and planning to add employees in 2024, as per J.P. Morgan’s India Business Leaders Outlook survey. The survey comprised answers from 315 business leaders, including chief executive officers, chief financial officers, heads of finance divisions and owners from Indian midsized companies.

Over three quarters of those surveyed sounded confident in the prospects of the Indian economy, the performance of the industries they belong to and their companies. “Mid sized companies can clearly see that India is well poised to maximize on opportunities," Pranav Chawda, head of commercial banking India, J.P.

Morgan said in an interview. More than nine in 10 leaders expect their profits and revenues to increase in 2024 and a majority of Indian leaders, 69%, were also optimistic about the global economy. In an online survey conducted between 16 November and 13 December, a little over half of the respondents said they anticipate a recession in 2024, which although shows that such concerns persist, is still down 10 percentage points from responses in the previous year.

“At an overall level, there is clearly an improvement happening in terms of growth. If you look at it myopically from one particular lens, it may look different," said Chawda. Chawda said that the large companies are growing at a faster rate and while smaller companies and the micro, small and medium enterprises (MSMEs) may not be growing at similar rates, it does not mean they are not seeing growth.

As per the survey, most executives expect increased capital expenditures (80%) and credit needs (78%) in the year ahead, on par responses in the previous year’s survey. Experts pointed out that the current investment cycle is being led by government capital expenditure and private investments have not taken off as anticipated, although some believe it could pick up in the coming quarters.

There are some encouraging signs, though. As reported on 1 January, new projects worth 2.1 trillion were announced in the three months to December, up 15% from the September quarter, as per data from the Centre for Monitoring Indian Economy (CMIE). “Overall, respondents have also given a few hints on why they are confident of growth in 2024.

A majority has said that they expect to utilize bank credit in this calendar year. That gives us a lot of confidence and now we also have the recent RBI data which shows that credit growth has gone up," said Chawda. A rise in capex would lead to higher demand for bank credit from corporates, a segment that grew 6.1% year on year (y o y) in November, as per RBI data.

That said, aggregate non food credit showed a growth of 16.3% y o y in November. Chawda said there are two reasons why credit growth will pick up. First, companies that are inherently profitable and are generating cash flows were using their cash flows to fund working capital and capex requirements internally, leading to sluggish bank credit offtake.

Now that such companies have started using cash flows for future capex, they are drawing down working capital lines. Second, companies that are cash flow positive and rely on bank credit are now expecting topline growth, thereby requiring more working capital. Additionally, about 83% of Indian business leaders reported that inflation has driven up costs, an issue that could persist in the year ahead.

As per the survey, Indian business leaders are embracing artificial intelligence (AI), machine learning and other new technologies. “Most companies are using or considering using AI tools (93%). Of those businesses, more than 9 in 10 are using or plan to use AI in a wide range of capacities, including business operations (97%) and human resources (94%)," the survey found.

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