|
Comfortable liquidity levels and signs of economic revival have boosted the prospects for India Inc. The last quarter saw a V-shaped recovery in its business confidence index propelled by a strong improvement in the sentiments globally
Signs of global economic recovery and liquidity in the financial system have given a much-needed impetus to India Inc. The last quarter saw a more-than-expected rise in Indian companies'' business confidence as shown by the quarterly ET-NCAER survey. Business prospects in the country are turning bright for sure. There is a sharp 45.3% jump in ET-NCAER''s business confidence index during the quarter ended Jun ''09. At the end of the quarter, BCI stands at a respectable 118.6 compared to 81.6 in the last quarter, which was lowest since February 1999. The current round of BCI has reversed the declining trend in the last five quarters and the improvement in sentiments is quite broad. The BCI, however, has a long way to go as it had peaked at 154 in the quarter ended Dec ''07.
BCI and its component
BCI, which has four components, offers assessment of present as well as future business conditions. Thus, the improvement across all the four components?overall economic condition and financial position of individual firms over next six months, current investment climate and capacity utilisation level?hints at a sustainable recovery in economic conditions. However, it was the current investment climate that witnessed a huge spike. It recorded a jump of 148% in the latest quarter as against 27% fall in the preceding quarter, thanks to sharp and frequent reductions in lending rates since Dec ''08. It was followed by 94% rise in overall economic conditions. Not only macro variables had shown increase in optimism but firm specific components had also witnessed upturn in confidence. But the confidence index particularly in this case is still 14% lower than the corresponding quarter last year implying the financials of the firms have improved but have not yet reached its normal level. The improvement in capacity utilisation was just 7%, lower compared with other components. It could be probably because it was relatively less beaten component during past five quarters of decline in optimism.
BCI by sectors
Another important feature of the current confidence is that there was across-the-board improvement in business optimism in all the five sectors. The highest gain was in the intermediate sector (67%) followed by capital goods (51%). Positive investment climate and better expectations of the economic conditions in coming six months were the main reasons behind the improved business sentiments in these two sectors. Remaining three sectors also echoed similar sentiments. However, firms belonging to services sectors were not sure about the improvement in their financial position over coming six months. There is an improvement in firms operating at optimal capacity level, however, the proportion of firms operating at these level in most of the sectors is below the proportion during boom period. But as consumption demand is expected to revive, this component may see an upsurge in coming quarters.
BCI by Regions
All the regions have seen improvement in the business confidence. The companies in western region reported the highest increase (75%) followed by South (61%) and East (48%). The northern region has recorded the least increase in the current round of the survey. Again the positive investment climate and optimistic view of overall economic conditions are the main factors leading to a recovery of confidence in the West, East and South.
BCI by Firm Size
When it comes to the firm size, it was the smallest and largest firms, which seem to be most upbeat about the overall business conditions. The highest increase in the business confidence was reflected in the smallest firms?having the annual turnover of less than Rs 1 crore?followed by the largest firms (annual turnover > Rs 500 crore). The smallest firms have recorded highest increase in all the four components of BCI in current round. However, medium size firms (Rs 10-100 crore) have recorded the lowest increase in overall business confidence.
BCI by Ownership Type
The disaggregation of responses by ownership also presents uniform pattern of improved business sentiments. Public sector, private limited, public limited and partnership or individually owned firms are now more optimistic than in March. There is improvement in the firm level indicators as well as overall perceptions.
Conclusion
Increase in optimism amongst India Inc is a positive sign for accelerating the pace of economic recovery. These positive sentiments were reflected in the industrial production for the first quarter of this fiscal year. The Index of Industrial Production has posted a growth of 3.74% during April-Jun 09 compared to 5.33% growth in the corresponding quarter previous year. However, a major downside risk to these upbeat sentiments arises from erratic monsoon this year. Drought may result in higher inflation raising risk, which may hamper the consumption demand and increase in interest rates. So it remains to see how this increased optimism gets translated into industrial activity.
|