Resultant Optimism for Selling Prices touches an all-time high
Highlights
- Composite Business Optimism Index for Q2 2011 has continued its upward trend and now stands at 183.3, registering an increase of 7.1% over the previous quarter
- On a y-o-y basis, the index recorded an increase of 28.4% (y-o-y)
- Resultant Optimism for Volume of Sales stands at 81% - a decline of 9 percentage points as compared to Q1 2011
- Resultant Optimism for Net Profits stands at 77%, marginally lower compared to 80% in Q1 2011
- Resultant Optimism for Selling Prices stands at an all-time high of 59%, registering an increase of 15 percentage points as compared to Q1 2011
- Resultant Optimism for New Orders stands at 81% – a decrease of 9 percentage points compared to Q1 2011.
The Dun & Bradstreet Composite Business Optimism Index stands at 183.3 during Q2 2011, an increase of 28.4% as compared to Q2 2010. On a q-o-q basis, the index recorded an increase of 7.1%. Based on the responses received, it was observed that three out of the six optimism indices – namely, selling prices, inventory levels and employee levels have registered an increase as compared to Q1 2011. Cautiousness in business sentiment on account of high inflation and expected hardening of interest rates is visible from relatively lower optimism with regards to Volume of Sales, New Orders, and Net Profits during Q2 2011 as compared to Q1 2011.
“Although the business optimism has continued to rise during Q2 2011, some signs of cautiousness are visible in the relatively lower resultant optimism for Volume of Sales, Net Profits and New Orders as compared to Q1 2011 following increased concerns of high inflation and rising interest rates. The all-time high resultant Optimism for Selling Prices not only reflects the inflationary pressures prevalent in the economy but also raises concerns about sustainability of the current growth momentum. High inflationary expectations seem to have tempered the exuberance regarding future demand conditions and profitability amongst the Indian corporates.” said Kaushal Sampat, President & CEO, Dun & Bradstreet – India. “Going forward, the performance of the monsoon, which is a critical determinant of food inflation as well as rural demand, will be crucial in influencing the business sentiment. Major policy announcements – both on the monetary and fiscal front, would also play an important role in shaping business sentiment in the ensuing quarter. The emerging geo-political situation in the Middle-East and North Africa would be an important determinant of business sentiment in the coming future.”
While majority of the respondents expect volume of sales to increase, some cautiousness is visible in the sentiment with the resultant Optimism for Volume of Sales (81%) registering a decline of 9 percentage points as compared to Q1 2011. However, on a y-o-y basis the resultant Optimism for Volume of Sales has registered 7 percentage points increase, with as many as 85% of the respondents expecting their volume of sales to increase in Q2 2011. While around 11% of the respondents anticipate volume of sales to remain unchanged, the remaining 4% of the respondents expect sales volume to decline during Q2 2011.
Profit expectations of the corporates remained healthy, with 82% of the respondents expecting their net profits to increase. While 5% of the respondents anticipate a decline in net profits, the remaining 13% expect their net profits to remain unchanged. The resultant Optimism for Net Profits stands at 77%, marginally lower compared to 80% in Q1 2011. It, however, recorded an increase of 11 percentage points compared to Q2 2010.
About 62% of the respondents expect the selling prices of their products to increase during Q2 2011. Rising input prices and expected improvement in demand is likely to have supported the optimism regarding this parameter. While a meagre 3% of the respondents anticipate selling prices to decline, 35% of the respondents expect no change in selling prices. The resultant Optimism for Selling Prices stands at an all-time high of 59%, registering an increase of 15 percentage points as compared to Q1 2011.
Approximately 85% of the respondents expect improvement in their order book position during Q2 2011. While 4% of the respondents expect new orders to decline, the remaining 11% anticipate no change in their order book position. The resultant Optimism for New Orders stands at 81% – a decrease of 9 percentage points compared to Q1 2011. The optimism for New Orders, however, remains above Q2 2010 level.
Around 53% of the respondents expect the level of inventory to increase during Q2 2011, while 7% of the respondents expect their level of stock to decline. The remaining 40% expect the level of stock to remain unchanged. The resultant Optimism for Inventory Level has risen to a 13 quarter high of 46%.
The employment scenario is expected to remain upbeat during Q2 2011, with as much as 63% of the respondents expecting an increase in the size of their workforce. While 34% of the respondents intend to keep the number of employees unchanged, around 3% of the respondents anticipate the size of their workforce to reduce. The resultant Optimism for Employees stands at a 13 quarter high of 60% recording an increase of 8 percentage points compared to 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.
