Business sentiment down 12.6%

Kuch Khatti Kuch Meethi. The D&B Business Expectations Survey for Q1 2008, conducted in December 2007, shows signs of optimism with a guarded sense of concern in the Indian economy, with strong growth earlier, followed by a slowdown in growth during the second quarter of FY08. As per recently released data, the Indian economy grew by 8.9% during Q2 FY08 as compared with a growth rate of 9.3% recorded during the previous quarter. The industrial and services sectors continued to display resilient performances, growing by 9.8% and 10.4% respectively. The manufacturing sector, however, grew by just 8.6%, a significant slowdown from the previous quarter, when growth stood at 11.9%. High interest rates, a result of the monetary tightening measures taken by the RBI, is expected to have played a major role in dampening the growth witnessed in this sector.

The D&B's Composite Business Optimism Index for Q1 2008 recorded a decrease of 12.6% to 168.9 from 193.2 in the previous quarter. On a y-o-y basis, the BOI recorded a decrease of 13.2%. Five out of the six optimism indices, namely volume of sales, net profits, new orders, inventory levels and employee levels have registered decreases as compared with the previous quarter. The good news is, amongst the sectors surveyed, the consumer non-durables sector and the intermediate goods sector were the most optimistic with respect to expectations for the Jan-Mar 08 quarter. The consumer durables sector seemed less optimistic amongst the sectors surveyed.

The corporate sector expects demand to remain strong in Q1 2008. Approximately 85% of the respondents expect sales volume to increase during the first quarter of 2008 while about 3% expect a decline in sales. About 80% of the respondents anticipate an increase in profitability while about 4% expect their net profits to fall in the forthcoming quarter. Approximately 16% of respondents have indicated that they expect no change in net profits for the quarter.

While about 54% of the respondents expect selling prices of their products to increase, 4% expect prices to decline and about 42% of the respondents surveyed expect no change in selling prices.
Approximately 85% of the respondents expect their order book position to improve, a marginal 2% expect a decrease in the number of new orders.

While about 50% of the respondents expect their level of stock to increase, about 39% expect to witness no change in their inventory levels during the Jan-Mar 08 quarter. As much as 11% expect their level of stock to decline during Q1 2008 as compared with less than 3% during the previous quarter.

For the Jan - Mar 08 quarter, approximately 45% of the respondents intend to increase the number of employees. A marginal 2% of the respondents expect a decline in the number of employees. However, a majority of respondents anticipate no significant change from the current situation. About 52% do not expect to witness any change in employee levels as compared with 30% in the previous quarter.

"Although there is a significant decline in the Index, the situation is less alarming than it seems when one considers the underlying components. A part of the decline in the composite Index is due to the fact that a significant portion of respondents expect a status quo in business conditions, rather than an outright deterioration. Thus, while we may witness some dampening in growth, it should not pose a significant concern", said Kaushal Sampat, Chief Operating Officer, Dun & Bradstreet - India. "Going forward, the Government's proposals for the corporate sector in the forthcoming budget will play a key role in determining business expectations over the next quarter".

D&B Optimism Index
The D&B Optimism Index is widely recognised as an indicator, which measures the pulse of the business community and serves as a reliable benchmark for investors. The index is arrived at on the basis of a quarterly survey of business expectations.

The survey is conducted on a sample of companies that are selected randomly from D&B's commercial credit file. The sample selected is a microcosmic representation of the country's business community and includes companies from several sectors including basic goods, capital goods, intermediate goods, consumer durables, consumer non-durables and service sectors.

Respondents to the survey are asked six standard questions regarding whether specified parameters viz., net sales, net profits, selling prices, new orders, inventories and employee levels, will register an increase, decline or show no change in the ensuing quarter as compared to the corresponding quarter of the previous year. The indices are then calculated by subtracting the percentage of respondents expecting decreases from those expecting increases.

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