However, concerns remain over a possible rise in interest rates.
"The surge in confidence about the growth prospects of the Indian economy is reflected in increased optimism of the business community," Dun & Bradstreet (India) President & CEO Kaushal Sampat said.
The Business Optimism Index (BOI), which measures the pulse of the business community, increased by 9 per cent on a quarter-on-quarter basis to 163.5 points in the October-December period of 2010.
As compared to fourth quarter of 2009, the BOI witnessed a growth of 14.2 per cent from a level of 143.2.
"Better than expected GDP and IIP numbers, buoyant capital markets, rise in foreign fund inflows coupled with improving demand conditions have supported the upbeat corporate sentiment, as is evident from the substantial increase in the Composite Business Optimism Index (BOI) for Q4 2010, which is now at a two-and-a-half year high," he said.
According to the report, RBI's monetary policy stance in the forthcoming mid-term policy review would be crucial in determining business expectations over the next quarter.
The magnitude and direction of the foreign capital flows in the ensuing months and the consequent policy actions would also play an important role in shaping business sentiment in the near future.
"Significant improvement in India Inc's profit expectations, which were largely muted during the past few BOI surveys, is a healthy development and underscores the robustness of the current phase of the economic recovery," Sampat added.
Moreover, the high optimism about volume of sales and new orders – indicative of improving demand conditions - augurs well for the sustainability of the current growth momentum.
For calculating the composite BOI, six parameters, namely net sales, net profits, selling prices, new orders,inventories and employee levels, are assigned a weight. The parameter weights are then applied to these ratios and the results aggregated to arrive at the index.
The index is arrived at on the basis of a quarterly survey of various business expectation parameters.
It was observed that five optimism indices have increased compared to the previous quarter, the release said.
According to the report, the employment scenario is likely to improve in the forthcoming quarter, with 53 per cent of the respondents expecting size of their workforce to increase during the fourth quarter of 2010.
In comparison, 43 per cent intend to keep the number of employees unchanged and another seven per cent anticipate a decline.