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The Business Confidence Index has fallen to a five-year low of 119.9 as pessimism spreads in India Inc. However, governments across the world are taking extra efforts to combat the slowdown. It remains to be seen how these measures play out in the coming quarters
INDIA INC's business confidence has ebbed further. This is reflected in the 66th round of the ET-NCAER Business Expectations Survey (BES) for the quarter ended September '08. The Business Confidence Index (BCI) has dipped to a five-year low of 119.9, as companies' expectations have worsened on all the four parameters, viz overall economic conditions, financial position, investment climate and capacity utilisation levels. The index stood at 154 in January '08, but has consistently deteriorated since then.
Although all these four criteria - which carry equal weightage in the BCI - suffered, unlike in the previous round of the survey, the dip in confidence in the current round has not been uniform across regions, sectors or size of companies.
With the passage of three months since the previous round of the survey, many respondents seem to have given in to the barrage of negative news. In fact, several groups, which had remained bullish earlier, have now turned bearish. At the same time, those respondents who had posted the largest fall in confidence in the previous round have mostly remained unchanged.
ALL'S NOT LOST
The services industry has seen a healthy revival in sentiment to emerge as the sector which is most hopeful about the overall economic conditions. In the previous round, this sector was the most pessimistic about overall economic conditions.
The intermediates sector is the least affected, as it remains the most optimistic about the current investment climate. Nevertheless, the sector has witnessed a fall in respondents who expect a growth in production and sales over the next six months.
However, the capital goods industry, which had seen the maximum decline in confidence level in the previous round, has turned out to be the biggest loser in the September '08 quarter as well.
There has been a marked increase in the number of respondents expecting a growth in sales over the next two quarters. Despite this fact, the services industry remains the most pessimistic about the investment climate and financial position over the next six months.
With the increased optimism about higher production and sales, the expectations on the profits front over the next six months have also increased. However, there has been a fall in the number of respondents expecting profit growth in excess of 10%.
| BUSINESS
CONFIDENCE BY SECTORS |
| |
Consumer Non-Durables |
Consumer Durables |
Intermediates |
Capital Goods |
Services |
| |
Current |
Previous |
Current |
Previous |
Current |
Previous |
Current |
Previous |
Current |
Previous |
| Overall Economic Conditions* |
43.9 |
54.4 |
54.4 |
57.1 |
54.7 |
53.1 |
54.6 |
67.6 |
59.8 |
53.6 |
| Financial Positions Of Cos* |
54.5 |
57.4 |
54.4 |
46.4 |
54.2 |
56.3 |
52.8 |
60.8 |
47.1 |
59.4 |
| Investment Climate^ |
36.4 |
36.8 |
38.6 |
44.6 |
42.6 |
40.1 |
38.0 |
48.0 |
27.6 |
36.2 |
| Capacity Utilisation^ |
95.5 |
94.1 |
91.3 |
95.6 |
92.6 |
94.3 |
91.6 |
95.1 |
94.2 |
92.8 |
| Business Confidence Index |
116.3 |
122.5 |
120.5 |
123.0 |
123.2 |
123.1 |
119.6 |
137.1 |
115.4 |
122.2 |
| *Expectations for next six months^Current
scenario |
(% of positive respondents) |
WEST, SOUTH KEEP THE FAITH
In terms of regional comparison, the West and South have witnessed a surprising improvement in business confidence across all criteria. The southern region has emerged as the most optimistic, but the western region, which was the most pessimistic in the previous round, continues to languish at the bottom, despite its improvement in confidence. The North has witnessed weakness on all counts, with a particularly steep fall in outlook on the current investment climate.
SIZE MATTERS
Surprisingly, the smallest companies in the group have joined the largest ones to register an improvement in confidence. Companies with turnover less than Rs 1 crore, as well as those with turnover exceeding Rs 500 crore, are more optimistic about the economic conditions, investment climate and capacity utilisation, but they don't feel that their financial position will improve.
PUBLIC Vs PRIVATE
Public sector enterprises, which were buoyant in the previous round of the survey, also seem to have succumbed to the pessimism. This is reflected in a fall in their business confidence. The BCI for public sector companies has fallen to 120.7 in the September '08 quarter from 149 in the June '08 quarter, and the sector is now the most pessimistic about the current investment climate and financial expectations.
The listed companies in the private sector, which figured at the bottom in terms of business confidence in the previous round, continue to maintain their position, with little change.
PRICE WATCH
Given the current economic downturn, there has been a decline in the number of respondents reporting a rise in raw material costs. The percentage of respondents which witnessed a hike in raw material prices during the preceding three months fell to 67.5% in the September '08 quarter, from 75% in the June '08 quarter. Similarly, only 62% of the respondents now expect a price increase over the next six months, compared to 70.4% earlier.
As a result of the worsening outlook, the labour market is also expected to remain subdued. Respondents reporting a wage hike or an increase in number of workers have come down sharply. Still, there has been an increase in the percentage of respondents expecting a wage increase over the next six months.
KEEPING FINGERS CROSSED
As the recession has spread to major global economies, India Inc seems to be uncertain about its immediate economic future. This is mainly due to a decline in those sections which had not fallen steeply earlier. However, several sectors of the industry hope to post healthy growth over the next six months. Governments across the world are taking extra efforts to combat the slowdown and have introduced several measures to this effect. The results of these efforts will become visible gradually over the next 6-9 months. Till then, India Inc needs to wait and watch how these measures will affect its confidence in the coming quarters.
Ramkrishna Kashelkar
ramkrishna.kashelkar@timesgroup.com
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