D&B Business Optimism Index for Q4 2009 increases by 3% (y-o-y) after declining for seven consecutive quarters (y-o-y)
Highlights
- Composite Business Optimism Index for Q4 2009 recorded an increase of 8.4% (q-o-q) to 143.2 from 132.1 in the previous quarter.
- On a y-o-y basis, the BOI for Q4 2009 recorded an increase of 3% as against a decline of 3.3% (y-o-y) in Q3 2009
- Resultant Optimism for Volume of Sales stands at 77%, an increase of 14 percentage points as compared to the previous quarter
- Resultant Optimism for Net Profits stands at 66%, an increase of around 7 percentage points as compared to the previous quarter
- Resultant Optimism for Selling Prices stands at 23%, a marginal improvement over 22% in the previous quarter.
- Resultant Optimism for New Orders stands at 77%, an increase of around 8 percentage points as compared to Q3 2009.
The Dun & Bradstreet Composite Business Optimism Index for Q4 2009 recorded an increase of 3% (y-o-y) - after declining for the last seven quarters (y-o-y). On a q-o-q basis, the composite BOI has grown by around 8.4% during Q4 2009 as compared to 40.8% (q-o-q) during the previous quarter. This could be partly attributed to the high base effect. Based on the responses received, it was observed that all six optimism indices – namely, volume of sales, net profits, selling prices, new orders, inventory levels and employee levels have registered an increase as compared to the previous quarter.
“D&B’s Composite Business Optimism Index (BOI) continues its upward movement for the second consecutive quarter in Q4 2009, pointing towards sustained improvement in business sentiment. After registering a negative growth for the last seven quarters (y-o-y), the BOI grew by 3% during Q4 2009 y-o-y. This, to a certain extent, indicates that the Indian economy is gradually entering the recovery phase. A confluence of factors such as expanding industrial production, improving investment climate, resumption in foreign fund flows and an upbeat sentiment in the domestic stock markets have helped in sustaining the business optimism. On a q-o-q basis, the BOI has grown by 8.4%, which is significantly lower compared to the 40% q-o-q increase of the previous quarter. This could be attributed partly to the high base effect; also, it underscores a period of stabilizing sentiment, versus over exuberance”, said Kaushal Sampat, Chief Operating Officer, Dun & Bradstreet – India. “Going forward, the RBI’s monetary policy stance in the forthcoming mid-term policy review will be crucial in determining business expectations over the next quarter. Also, the impact of poor monsoon on agriculture sector performance and consequently on industrial activity would play a key role in shaping business sentiment in the near future” he added.
Demand conditions are expected to improve further during Q4 2009, with as many as 82% of the respondents anticipating an increase in sales volume. While about 13% of the respondents expect their volume of sales to remain unchanged, only 5% of the respondents anticipate a decrease in sales during Q4 2009. The resultant Optimism for Volume of Sales stands at 77%, an increase of 14 percentage points as compared to the previous quarter.
Profit expectations of the Indian corporates continued to improve, with as many as 73% of the respondents expecting an increase in their net profits during Q4 2009. While about 7% of the respondents are anticipating a fall in their net profits, as many as 20% of the respondents expect no change in net profits during Q4 2009. The resultant Optimism for Net Profits stands at 66%, an increase of around 7 percentage points as compared to the previous quarter.
While about 33% of the respondents expect selling prices of their products to increase, about 10% expect to witness a decline in their selling prices during the Oct-Dec 09 quarter. However, a majority of respondents from almost all sectors anticipate no significant change in the prevailing prices. About 57% of the respondents do not expect to witness any change in selling price. The resultant Optimism for Selling Prices stands at 23%, a marginal improvement over 22% in the previous quarter.
Demand conditions are expected to witness significant improvement in the medium to long term, with as many as 82% of the respondents anticipating their order book position to improve. While around 5% of the respondents expect a decrease in the number of new orders, about 13% expect no change in their order book position during Q4 2009. The resultant Optimism for New Orders stands at 77%, an increase of around 8 percentage points as compared to Q3 2009.
While around 35% of the respondents expect to witness an increase in their inventory levels, around 11% expect their level of stock to decline in the Oct-Dec 09 quarter. As many as 54% of the respondents anticipate no significant change from the current situation. The resultant Optimism for Inventory Levels stands at approximately 24%, reflecting an increase of about 10 percentage points from the previous quarter.
The employment scenario is expected to improve with as many as 48% of respondents expecting an increase in number of employees during Q4 2009 as compared to 38% in Q3 2009. While 47% of the respondents intend to keep the number of employees unchanged, 5% expect a decline in number of employees during Q4 2009. The resultant Optimism for Employees stands at 43% for the Oct-Dec 09 quarter, an increase of around 10 percentage points as compared with the previous quarter.
About the D&B Business Optimism Index
The D&B Business 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.
For calculating the Composite Business Optimism Index, each of the six parameters is assigned a weight. The positive responses for every parameter for the period under review are expressed as a proportion of positive responses in the base period (Q2 1999). The parameter weights are then applied to these ratios and the results aggregated to arrive at the Composite Business Optimism Index.
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