Mumbai, April 20, 2004

Dun & Bradstreet India today released its Business Optimism Index (BOI) for India for the period Apr-Jun (Q2) 2004. The D&B Business Expectations Survey for Q2 2004 reveals that the business confidence has declined compared to the previous quarter. The Business Expectation Survey for Q2 2004 was conducted in March 04 when the economy was gearing up for the forthcoming general elections.

The Composite Business Optimism Index for Q2 2004 came off its peak recorded in the previous quarter and fell 6.4% to 139.3. Despite the fall, which incidentally has come after an upward streak for seven consecutive quarters, the Composite Business Optimism Index is still 5.4% higher than its level in Q4 2003. All six optimism indices, namely volume of sales, net profits, selling prices, new orders, inventory and employees, declined in Q2 2004 compared to the previous quarter.

The corporate sector has moderated its expectations of demand growth to some extent. But still, by and large, respondents remain bullish about the sales prospects. Nearly 83% of the respondents expect sales volume to increase in Apr-Jun 04 while only a little over one-tenth expect a decline in sales. The resultant Optimism Index for Net Sales stands at 72%, as compared to 82% in the previous quarter. The intermediate goods sector is the most optimistic about the prospect for sales volume, followed by consumer non-durable goods and basic goods sectors. Consumer durables sector is the least optimistic about topline growth.

While the corporate sector has witnessed improvement in bottom lines in FY04, the expectations about future profitability are getting moderated. The Optimism Index for Net Profits declined for the second consecutive quarter to 65% for Q2 2004. While 80% of the respondents expect net profits to go up in the forthcoming quarter, 15% expect profits to fall.

Though many sectors have been witnessing a hardening of input prices in recent times because of the trend in the international commodity prices, only about 33% of the respondents expect the selling prices of their products to go up during Apr-Jun 04. While about half the respondents anticipate no change in the selling prices, 17% of the companies expect prices to decline. The resultant Optimism Index for Selling Prices stands at 16%, which marks a decline from the peak of 26% witnessed last quarter. Nearly 80% of the companies expect their new orders to go up as compared to only 6% who expect it to decrease. The resultant Optimism Index for New Orders stands at 74%, as compared to 81% in two previous quarters. The index is now at a level just above its level in Q3 2003.

Nearly half the companies do not anticipate any change in their inventory levels. While 32% respondents expect their level of stocks to increase, 17% expect it to decline in Apr-Jun 04. The Optimism Index for Inventory stands at 15%. As in the previous round of the survey, this time too 38% of the respondents plan to increase their number of employees. However, the proportion of companies expecting the number of employees to decline has increased in the current round to 13%. As a consequence, the Optimism Index for Employees has declined to 25% for Q2 2004.

"After a growth streak of seven consecutive quarters, it is but natural to expect a slight easing of business confidence, especially taking into account the forthcoming elections", said Mr Rajesh Mirchandani, Vice President and Managing Director, Dun and Bradstreet- South Asia & Middle East. "The installation of a stable central government after the elections, combined with updated estimates regarding the approaching monsoons, will be the key drivers of business confidence in the next 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, 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, 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 indexes 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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Download D&B Q2 2004 Optimism Index for India