B D NarayankarThe Dun & Bradstreet Composite Business Optimism Index for Q4 2008 recorded a decrease of 28.1% to 138.9 from 193.2 in Q4 2007. This is the largest magnitude of fall ever witnessed in the Index. All six sub-indices have fallen significantly as compared to the same period, last year. In fact, the resultant Optimism Index for Net Profits has experienced a decline of as much as 21 percentage points compared to Q4 2007. The resultant Optimism Index for Volume of Sales has also declined by as much as 17 percentage points on a y-o-y basis indicating subdued demand conditions. The resultant Optimism Index for New Orders stands at 68%, an 18 percentage point decline compared to the same period, last year.
"The crisis of confidence being witnessed across the world's financial markets is reflected in the deteriorating sentiment of the Indian business community. The moderation in economic growth, high inflation and deepening global financial crisis have adversely affected corporate sentiment, as is evident from the decline of as much as 28% (y-o-y) in the Composite Business Optimism Index for Q4 2008", said Kaushal Sampat, Chief Operating Officer, Dun & Bradstreet - India. "Going forward, further developments in the global financial markets, their impact on the Indian financial sector and the outlook on global economic growth will determine the expectations of business community over the next quarter. The RBI's monetary policy stance during the mid-term review is also likely to impact business sentiment in the next quarter." he added.
As compared to the previous quarter, the Composite Business Optimism Index has registered a marginal increase of 1.8%; however, this is in part due to the low base of the previous quarter. The q-o-q increase in the optimism indices can partly be attributed to a larger number of respondents anticipating no significant change from the current situation. Amongst the sectors, the services sector was the least optimistic. Since a majority of the service sector respondents belong to the IT, financial services, broking houses and trade segments, it is possible that the turmoil in the global financial markets, slowdown in global growth and the bearish sentiment in stock markets have dampened expectations of respondents from this sector.
Demand conditions are expected to remain subdued during the Oct-Dec 08 quarter. However given the forthcoming festive season not many respondents expected the demand situation to deteriorate further. Approximately 4% of the respondents expect a fall in the sales volume during the fourth quarter of 2008. While about 72% anticipate an increase in sales volume, as much as 24% of the respondents expect no significant change from the current scenario. The resultant Optimism Index for Volume of Sales stands at 68%, an increase of 9 percentage point as compared to the previous quarter. However the resultant Optimism Index for Volume of Sales has declined by as much as 17 percentage points on a y-o-y basis.
Approximately 66% of the respondents expect an increase in profits during Q4 2008, while only 5% of the respondents anticipate a fall in their net profits in the forthcoming quarter. However, as much as 29% of the respondents expect no change in the net profits during Oct-Dec 08 quarter. The resultant Optimism Index for Net Profits has experienced a decline of as much as 21 percentage points on a y-o-y basis.
While about 40% of the respondents expect selling prices of their products to increase, about 7% expect to witness a decline in their selling prices during the Oct-Dec 08 quarter. However, a majority of respondents from almost all sectors anticipate no significant change in the prevailing prices. About 53% do not expect to witness any change in selling price. The resultant Optimism Index for Selling Prices stands at 33%, reflecting a marginal decline of 3 percentage points from the previous quarter.
Approximately 72% of the respondents expect their order book position to improve and 4% anticipate a decrease in the number of new orders during Q4 2008. The resultant Optimism Index for New Orders stands at 68% marginally above 64% in the previous quarter.
While around 46% of the respondents expect to witness an increase in their inventory levels, around 10% expect their level of stock to decline in the Oct-Dec 08 quarter. As much as 44% respondents anticipate no significant change from the current situation. The resultant Optimism Index for Inventory Levels stands at approximately 36%, reflecting an increase of about 13 percentage points from the previous quarter.
The majority of respondents anticipate no change in the size of the workforce employed during Q4 2008. Approximately 59% of the respondents intend to keep the number of employees unchanged. While 37% of the respondents expect an increase in the number of employees, 4% expect a decline. The resultant Optimism Index for Employees stands at 33% for the Oct-Dec 08 quarter, an increase of around 4 percentage points as compared with the previous quarter.
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.
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.
Dun & Bradstreet (NYSE:DNB), the world's leading source of global business information, knowledge and insight, has been enabling companies to Decide with Confidence® for 165 years. D&B's global commercial database contains more than 100 million business records. The database is enhanced by D&B's proprietary DUNSRight® Quality Process, which transforms the enormous amount of data collected daily into decision-ready insight. Through the D&B Worldwide Network - an unrivaled alliance of D&B and leading business information providers around the world -customers gain access to the world's largest and highest quality global commercial business information database.
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