Shaking off the impact of the two ongoing wars across the world, Indian companies now seem to be on a steadier footing and optimistic about the future. This is reflected in the BT-C Fore Business Confidence Survey, conducted among 500 Chief Executive Officers (CEOs) and Chief Financial Officers (CFOs) for the October-December 2023 quarter, which hit its highest level since the April-June 2015 quarter.
The Business Confidence Index (BCI) rose to 56.5 in the December quarter, slightly higher than 54.1 recorded in the previous quarter. However, prior to this, the BCI had declined gradually from a high of 57.4 in April-June 2015, to a low of 43.2 in the June 2021 quarter.
Recent data shows the domestic economy is showing strength despite unfavourable global conditions. The first flash estimate of national income has projected gross domestic product (GDP) growth at 7.3% this fiscal year, reversing expectations of a decline from 7.2% in FY23. Economic growth appears to have slowed in the second half of the fiscal year, but high-frequency indicators suggest demand and consumption remain strong even after the festive season.
Aditi Nayar, chief economist and head of research and outreach at ratings agency ICRA, said factors such as a high base, weak outlook for agricultural output and rural demand, and a potential slowdown in government capital expenditure growth are contributing to the expected slowdown in economic growth in the second half of the current fiscal. “We have revised our growth forecast for the current fiscal to 6.5 percent and now expect a more moderate slowdown in the second half of the year compared to our previous forecast,” Nayar said.
The latest BCI shows improving business confidence across all sectors, with light manufacturing – which comprises businesses related to food, beverages, textiles, timber, furniture, paper, publishing and leather – standing out as the most optimistic in the December quarter with a reading of 58.6.
Additionally, confidence is rising across all sizes of business, with larger companies being the most optimistic with a score of 60.2, while smaller businesses continue to face challenges and have a more muted sentiment of 52.3.
Madhav Arora, chief economist at MK Global Financial Services, said business confidence depends on many factors beyond just the headline GDP figure, including the regulatory and policy environment, low inflation, policy and political certainty and the stage of the business cycle.
“Q4 has been good. Growth is expected to slow in the second half of the quarter compared to the first half. Companies may not enjoy the same profit margins as in the first half. GDP growth in the second half of FY24 is expected to be around 6.5 per cent and we do not expect fiscal growth to exceed 7 per cent at the time the final version is released,” she noted.
Businesses are optimistic about the fourth quarter of FY24, signaling further improvement in overall economic conditions, rating the fourth quarter at 5.6 out of 10, up from 5.2 in the previous quarter. Demand conditions, profitability and employment also appear to be improving, but employment sentiment is relatively subdued, rated at 5.5 (see chart). Arora said businesses already hired more than they needed last year and are anticipating rising demand and worker mobility, which could dampen hiring sentiment.
The situation is not all rosy. 68% of survey respondents are concerned about rural demand and consumption, and 72% believe the upcoming general elections will impact government capital expenditure spending. “Demand and consumption growth is uneven, with higher demand seen among some income groups in urban areas. Rural demand is weak due to uneven monsoon rains and concerns about rabi crop yields that have led to cautious sentiment. Commodity prices have stabilized year-on-year, providing additional confidence to manufacturers,” Nayar points out.
Indian businesses also remain concerned about weakening demand, with 71% of respondents citing this as their top concern, and 16% citing a continued slowdown in exports as their top concern. The threat of pricing pressures also remains a concern, with 9% of those surveyed citing food inflation as their top concern.
The interim budget and Treasury calculations show the economy is in a much stronger position, although the general election may create some uncertainty, but it is clear that businesses are confident about how they will handle the election.
Surabi
