Business optimism index in India rises in Q2 of 2014: D&B

Business optimism in India improved for the second quarter this year and there has been a positive shift in India Inc's sentiment despite economic uncertainty, says a Dun & Bradstreet report.

The Dun & Bradstreet Composite Business Optimism Index for the second quarter of 2014 stands at 154.5, an increase of 9.1 per cent compared to levels in Q2 of 2013.

The index is based on the responses received where five out of the six optimism indices - namely, volume of sales, new orders, net profits, selling prices and inventory levels have registered an increase as compared to Q2 of 2013.

A significant majority of the respondents expect volume of sales to increase (85 per cent) in Q2 of 2014. While 3 per cent of the respondents anticipate the sales volume to decline, the remaining 12 per cent of the respondents expect volume of sales to remain unchanged during the quarter. The resultant optimism for volume of sales stands at a 13-quarter high of 82 per cent, which is an increase of 14 percentage points when compared to Q2 of 2013.

Around 68 per cent of the respondents expect an increase in profits during Q2 of 2014, while 27 per cent indicated that they expect no change in net profits. About 5 per cent of the respondents expect their net profits to decline. The resultant optimism for net profits stands at 63 per cent - an increase of 2 percentage points compared to Q2 of 2013 and a decrease of 10 percentage points compared to Q1 of 2014.

Around 41 per cent of the respondents expect the selling price of their products to increase during Q2 2014. While 54 per cent of the respondents anticipate no change in selling prices, the remaining 5 per cent of the respondents expect a decline in selling prices. The resultant optimism for selling prices stands at 36 per cent - an increase of 6 percentage points compared to Q2 of 2013.

Around 81 per cent of the respondents expect their order book position to improve during Q2 of 2014. While 16 per cent of the respondents anticipate no change in the new orders received, the remaining 3 per cent expect new orders to decline. The resultant optimism for new orders stands at a 12-quarter high at 78 per cent, which is an increase of 12 percentage points when compared to Q2 of 2013.

Around 58 per cent of the respondents expect their level of stock to increase during Q2 of 2014, while 32 per cent expect their level of stock to remain unchanged. The remaining 10 per cent of the respondents expect their inventory levels to decline during Q2 of 2014. The resultant optimism index for inventory levels stands at 48 per cent, which is an increase of 12 percentage points when compared to Q2 2013.

Around 55 per cent of the respondents anticipate no change in the size of their workforce employed during Q2 of 2014. While 39 per cent of the respondents intend to increase the number of employees, the remaining 6 per cent expect the size of their workforce to decline. The resultant optimism for employees stands at 33 per cent - a decrease of 5 percentage points when compared to Q2 of 2013.

For calculating the composite BOI, each of the six parameters is assigned a weight. The weights are then applied to these ratios and the results aggregated to arrive at the composite Business Optimism Index.

''There has been a positive shift in business sentiment amongst India Inc. Even as business sentiment continues to be impacted by economic uncertainty, a sense of confidence appears to be slowly returning,'' said Kaushal Sampat, President & CEO, Dun & Bradstreet (India).

''The buoyant sentiment regarding future demand conditions, reflected in the 13-quarter high resultant optimism for volume of sales, underscores the confidence apparent in the domestic economy currently,'' he added.

Sector-wise, basic goods were found to be the most optimistic.

While the recent clearances of projects by the Cabinet Committee on Investment and a pickup in new project announcements could have played a role herein, Sampat said a stable political outcome after the election could provide a significant boost to business confidence in the forthcoming quarter.

''That said, sustenance of improved confidence levels would be contingent upon the effective and speedy implementation of structural reforms to stoke growth rates. This would correct the economic imbalances and shift the economy onto a more sustainable growth path,'' he added.

However, the report sees muted growth in employment scenario in the country in the coming quarter as more than half of the respondents (55 per cent) anticipate no change in the size of their workforce during Q2 of 2014.