The economic crisis and rising unemployment will cast an even longer shadow of uncertainty on companies in the second quarter of 2009, reveals a latest study by Dun & Bradstreet (D&B), leading global financial data services company.
The survey includes several sectors such as basic goods, capital goods, intermediate goods, consumer durables, consumer non-durables and service sectors.
The D&B Composite Business Optimism Index (BOI) for Q2 2009 declined by around 2 per cent to a new low of 93.8, after touching 95.7 in Q1 2009.
However, the pace of contraction is lower as compared to the previous quarter; in Q1 2009 the Composite Optimism Index fell by 31 per cent (Q-o-Q).
On a year on year basis, the BOI for Q2 2009 recorded a decrease of 39 per cent as against a decline of 43 per cent in Q1 2009.
The BOI of D&B 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.
Based on the responses received, it was observed that five out of the six optimism indices – namely, volume of sales, net profits, selling prices, new orders, and employee levels have registered a decline as compared to the previous quarter. Only one out of the six optimism indices – inventory levels – increased by seven percentage point as compared to the previous quarter.
'' While the BOI shows marginal improvement, sentiment continues to be dampened. Less than expected growth in GDP numbers is likely to have dented corporate confidence. Decline in industrial production for two consecutive months (December and January) and in exports for five months in a row (October-February) remains a cause for concern'', said Kaushal Sampat, chief operating officer, D&B - India.
''Going forward, the outcome of the forthcoming parliamentary elections and stability of the ensuing government will play a key role in determining business expectations over the next quarter. The rapidly evolving dynamics of the global economy over the coming months will continue to have an impact on domestic business sentiment'' he added.
Demand conditions are expected to remain subdued during Q2 2009. While about 50 per cent of the respondents anticipate an increase in sales volume, as many as 27 per cent of the respondents expect the sales volume to decline in Q2 2009. The resultant Optimism for Volume of Sales remained unchanged at 23 per cent (this is the lowest value since Q1 2002) compared to the previous quarter. However, the resultant Optimism for Volume of Sales has declined by as much as 40 percentage points as compared to Q2 2008.
Profit expectations of the Indian corporate sector continued to taper further with as many as 28 per cent of the respondents anticipating a fall in their net profits in the forthcoming quarter. Approximately 46 per cent of the respondents expect an increase in profits during Q2 2009, while as many as 26 per cent expect no change in profits. The resultant Optimism for Net Profits declined by around 5 percentage points compared to the previous quarter and stands at 18 per cent (a 27 quarter low).
With moderating demand conditions, lowering input costs and the extension of excise duty cuts beyond 31 March 2009, as many as 78 per cent of the respondents expect the selling prices of their products to decline or remain unchanged in Q2 2009. While about 22 per cent of the respondents expect selling prices of their products to increase, about 26 per cent expect to witness a decline in their selling prices during Q2 2009. The resultant Optimism for Selling Prices stands at -4 per cent, the lowest value registered since Q1 2002.
Approximately 52 per cent of the respondents expect their order book position to improve (an increase of 4 percentage points from the previous quarter), while around 27 per cent anticipate a decrease in the number of new orders during Q2 2009. The resultant Optimism for New Orders stands at 25 per cent (a 27 quarter low) marginally lower compared to 26 per cent in the previous quarter.
While about 34 per cent of the respondents expect their level of stock to increase, around 48 per cent expect to witness no change in their inventory levels during the April-June quarter. Approximately 18 per cent expect their level of stock to decline during Q2 2009 as compared to 22 per cent during the previous quarter. The resultant Optimism for Inventory Levels stands at 16 per cent an increase of around 7 percentage points as compared to Q1 2009.
The majority of respondents anticipate no change in the size of the workforce employed during Q2 2009. Approximately 65 per cent of the respondents intend to keep the number of employees unchanged. While 24 per cent of the respondents expect an increase in the number of employees, 11 per cent expect a decline. The resultant Optimism for Employees stands at 13 per cent for the Apr-Jun 09 quarter, a decrease of around 8 percentage points as compared to the previous quarter.