MSME Sector Outlook Positive But Margin Pressure Persists: SIDBI Outlook Survey

(MENAFN- KNN India) ** New Delhi, Feb 26 (KNN)** India’s MSME sector has shown resilience amid global headwinds, said the SIDBI Outlook survey, noting improvement in business sentiment and access to finance.

The MSME Business Confidence Index (M-BCI) stood at 60.8, marginally lower than the previous quarter but comfortably above the expansion threshold of 50.

Forward-looking indicators strengthened notably, with the Business Expectations Index (MBEI) rising to 63.7 for January–March 2026 and improving further to 65.0 for the one-year-ahead period, signalling sustained optimism in the near to medium term.

The survey also highlighted a strong correlation of around 0.8 between MSME confidence and both GDP growth and MSME credit growth, reinforcing the importance of macroeconomic stability and credit flow in shaping sentiment.

On the sectoral front, manufacturing reported stronger sales sentiment, a clear improvement in Net Response, defined as the difference between positive and negative responses, and higher expectations for future sales.

The services sector recorded stable near-term sentiment, while the one-year-ahead outlook remained positive, with 58 percent of respondents expecting revenue growth.

Finance indicators in services improved marginally. Trading enterprises reported stable quarter-on-quarter trends and continued optimism regarding upcoming sales prospects, although sentiment around working capital moderated even as overall finance optimism strengthened.

In manufacturing, optimism regarding working capital availability rose sharply to 46 percent from 35 percent in the previous quarter, while overall finance optimism increased to 47 percent. Exporting MSMEs showed particularly strong improvement, with 50 percent reporting adequate availability of working capital and overall finance, up from 32 percent earlier.

Exporters also expressed improved optimism on both total and export sales. Looking ahead, they expect resilient demand, better profit margins and sustained credit access, even as export dispatch expectations show some moderation.

Profit margin pressures, however, persist across sectors. A majority of respondents reported margins at levels comparable to the average of the past two years.

Services and trading enterprises witnessed a decline or negative shift in Net Response on profit margins compared to the previous quarter. Nevertheless, outlook expectations suggest improvement, especially in the services sector.

Notably, net profit margin was the only parameter to weaken on a year-on-year basis, underscoring persistent cost pressures despite easing liquidity conditions.

Under the overall business situation indicator, manufacturing and trading recorded improvement, with over 50 percent of respondents in each sector reporting better business conditions, while services remained broadly stable. Looking ahead, sentiment strengthens across all sectors, indicating expectations of an improved operating environment in the coming quarters.

The introduction of new labour codes is viewed as an opportunity to strengthen operational frameworks and promote formalisation and transparency.

However, about 34–36 percent of respondents anticipate an initial rise in compliance costs. Between 16–21 percent have sought greater clarity on specific provisions, while 17–19 percent emphasised the need for enhanced training and awareness initiatives.

The survey noted that targeted training and awareness efforts will be critical to ensure smooth adaptation.

A year-on-year analysis shows improvement in both composite and sectoral M-BCI readings. The trading sector recorded the highest growth at 9.3 percent, followed by manufacturing at 6.2 percent, while services posted modest gains.

Five of the six tracked parameters registered improvement, led by working capital availability, overall finance, sales or revenue and the overall business situation indicator.

SIDBI’s MSME Outlook Survey Round V shows business confidence above expansion levels, stronger finance access and resilient sales, despite margin pressures. Overall, MSMEs appear well-placed to manage global uncertainties, backed by macro stability and policy support.

** (KNN Bureau)**

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