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Corporate sector upbeat on outlook -- CII business survey reaffirms feel-good factor

Our Bureau

NEW DELHI, May 28

THE ``feel good'' factor in the Indian industry is likely to continue for another six months at least, with the interim report of a survey conducted by the Confederation of Indian Industry (CII) indicating that business confidence continues to be on the rise.

The interim report of CII's 53rd Business Outlook Survey based on responses from 125 companies shows that there is sustained optimism in the domestic corporate sector in the short term, over the next six months. The survey relates to the actual performan ce of industry during October-March 1999-2000 and the forecast for April-September 2000.

The present survey shows that business confidence continues to be on the rise, as was the case in the previous two surveys. The results of the current survey re-establishes and reaffirms the existence of the feel-good factor in the corporate sector. As i n the previous survey, optimism is prevalent across the board, covering all sectors of industry.

``The corporate sector is upbeat on its performance in terms of several factors such as production, value of output, total order position, employment and retail sales. The expectations regarding profit margins for the next six months have also improved,' ' the survey states.

A comparison with the previous survey, in terms of the general business situation, reveals an improvement in sentiments. The number of optimists have increased to 59 per cent as compared to 56 per cent in the previous survey. Those expecting a turn for t he worse in the general business situation are 8 per cent compared to 7 per cent in the previous survey.

The percentage of respondents envisaging more investments in the short-term future has also seen a strong rise, with an overwhelming majority of the respondents projecting increased investments. The improved outlook for business is also expected to trans late into an increase in employment for a majority of the respondents to the survey.

Among the corporates which responded, those expecting to authorise higher capital expenditure have increased to 89 per cent from only 77 per cent in the previous survey. As a percentage of the total response, a break-up of the respondents predicting an i ncrease shows that 51 per cent expect higher capital expenditure between 5-10 per cent, while 20 per cent expect it to be between 10-20 per cent and 9 per cent expect it to be above 50 per cent.

On the other hand, only 11 per cent of the respondents expect to authorise less capital investment during the same period as against 23 per cent in the previous survey.

Expecting an improvement in demand in the short term, respondents from all the segments expect increased retail sales, orders of their products and value of output, in accordance with their industry classification, and consequently better profit margins . The respondents also consequently expect to step up their production in the next six months.

A whopping 95 per cent of the respondents expect an increase in production with only 5 per cent foreseeing a decline in production in their organisation. A significant number (35 per cent) of the respondents forecast a high growth in production of above 10 per cent. The respondents foreseeing negative growth of production during April-September 2000 has decreased to 5 per cent from 7 per cent.

Further, 71 per cent of the respondents expect profit margins to improve, 5 per cent expect the same trends and 23 foresee lower profits during the next six months. In the past six months the profit margins were higher for 51 per cent of the respondents, same for 4 per cent and lower for 46 per cent.

Similarly, 85 per cent of the respondents forecast higher sales, 10 per cent expect the same trend to continue and 5 per cent see lower sales during the next six months.

For a majority (45 per cent) of the respondents lack of orders from the Government and domestic and overseas customers was expected to restrict output. Cost of funds (29 per cent), domestic competition (32 per cent) and international competition (31 per cent) are expected to be the other major constraints to expanding output in the next six months,

The restrictions experienced in the last six months included cost of funds (32 per cent), orders (49 per cent), domestic competition (29 per cent) and international competition (31 per cent).