A global slowdown coupled with the Indian government's policy paralysis has pushed down Indian companies' business confidence to its lowest in 3 years, falling by 18.2% year-on-year in the second quarter of 2012, a survey conducted in March 2012, by Dun & Bradstreet (D&B) India, a global business information provider.
The D&B Business Optimism Index or BOI points out that this is the steepest decline in corporate India's Composite Business Optimism Index in the last 12 quarters. The subdued business confidence of Indian corporates is also reflected in their lower net profit expectations, which declined 21% y-o-y. The optimism for selling prices also registered an yearly fall of 20%.
"Corporate India was pinning its hopes on the Union Budget 2012-13 and the absence of major reforms in the Budget could have been responsible for the steep decline in the BOI on a y-o-y basis," says Kaushal Sampat, president & chief executive officer – India, Dun & Bradstreet.
As Indian companies struggle to keep raw material cost down amid slowing demand, the budget proposal to hike excise and service tax rates has the potential to further squeeze corporate margins, states the D&B study. "This could further bring down confidence of companies."
Though the BOI has declined sharply on a yearly basis, the fall is only 4% on a quarterly basis. "This needs to be viewed against the backdrop of possible rate cuts by the Reserve Bank of India around June 2012, which could bolster business confidence.” says Sampat.
The D&B survey, which is a reliable indicator of the sentiments of the business community, is conducted on a sample of companies that are selected randomly from D&B’s commercial credit file. The sample selected includes companies from several sectors including basic goods, capital goods, intermediate goods, consumer durables, consumer non-durables and service sectors.