According to a survey conducted by accounting firm KPMG, though business confidence balances remain below the buoyant levels seen prior to thefinancial crisis, there has been a marked improvement in firms assessment of conditions.
The improved sentiment is encouraging and reflects the fact that many sectors have a significant dependency on the domestic market and have been positively impacted by lower interest rates, lower inflation and improved liquidity. The outcome of the national elections and the monsoons will, in the next few months, determine how this trend develops, said Russell Parera, CEO of KPMG India, while talking about India's corporate sector. The spring 2009 KPMG Business Outlook Survey surveyed around 1,400 service sector firms across the Bric region.
Among the four countries, optimism is highest in Brazil, while confidence has also rebounded strongly in Russia and India. However, sentiment in China has eased a little compared with the previous survey, although it remains highly positive, the survey said.
The findings perhaps suggest that the Bric nations can achieve reasonable growth rates this year, even as developed economies are set to contract. Clearly, the extent to which the big emerging markets can take up the slack from the US, Europe and Japan will be a key determinant of global economic prospects, said Ian Gomes, chairman (High growth markets practice), KPMG.
Gomes added that while firms are now more confident over their own business prospects, they are nevertheless mindful of the impact that further turbulence in a weak global economy could have on domestic demand for their services. In line with the improved outlook for activity, companies are also planning to step up their recruitments and capital investment accordingly.
As far as the outlook for India is concerned, the survey projects India's service sector to grow solidly over the next 12 months. Indian companies are also upbeat about volume of incoming new business as around 37% of surveyed companies forecast new order growth in one year's time, as against 16% that anticipate a fall. However, Indian service firms estimate faster input cost inflation during the next 12 months and wage bills, raw materials and outsourcing costs are all expected to be sources of inflation.
Indias corporate sector is up at its capital expenditure significantly as 43% of the surveyed companies reported that they are looking to increase spending on fixed assets, compared with just 7% that plan to reduce it.
The survey also has some good news for India's outsourcing industry, which has been deeply hit by the global economic crisis. As the report suggests, service providers in Bric countries expect to outsource more over the next 12 months. Some highlights of the report include that Brazilian companies are set to increase their outsourcing the most while firms in China expect the smallest rise.