India Inc's business optimism for the December quarter increased this year compared with the same period last year, mainly driven by strong public investment in road and railway, and a downward momentum in food inflation, says a Dun & Bradstreet report.
The business optimism index (BOI), which measures the pulse of the business community, stood at 80 during the fourth quarter of 2016, an increase of 1 per cent as against the same period last year.
"Regional disturbances between Karnataka and Tamil Nadu over the Cauvery water disputes and the increased tension along the Line of Control during September has made business sentiment for the fourth quarter of 2016 a tad cautious," said Kaushal Sampat, President & MD - India, Dun & Bradstreet.
"Nonetheless, the fourth quarter BOI grew marginally over the prior year due to continued policy thrust and strong public investment in roads, railways and inland waterways."
Sampat saw downward momentum in food inflation, payouts of the 7th Pay Commission just before the festive season and measures taken by RBI to infuse liquidity supporting confidence levels.
"While the cut in the repo rate by 25 basis points will infuse hope among corporates, effective transmission of the repo rate cut will bring assurance to the broader market," Sampat added.
Based on the responses received, four out of the six optimism indices have registered a decline as against the same quarter last year.
Around 79 per cent respondents expect volume of sales to increase in the fourth quarter of 2016 compared to around 80 per cent a year ago, a decrease of 1 percentage point.
Optimism for volume of sales stood at 79 per cent - the highest in the last four quarters.
About 65 per cent of the respondents expect an increase in net profit in the quarter under review compared with around 67 per cent a year earlier, a decrease of 2 percentage points.
Also, 66 per cent respondents expect no change in selling price of their products in the December quarter while around 71 per cent expect their orderbook position to improve as against around 70 per cent in the previous year.
Nearly 36 per cent expect an increase in the size of their workforce during the said quarter compared with 31 per cent last year. Some 25 per cent expect inventory level to go up in comparison to 32 per cent in the year-ago period.
"The cross-border conflict, OPEC's decision to make a modest cut in their collective output later this year in an effort to bolster sagging oil prices, ambiguity around the Fed rate cut by December 2016 and liquidity conditions are expected to have a bearing on the business sentiment, going forward," he added.
For calculating the composite BOI, each of the five parameters (excluding inventory) -- volume of sales, net profit, selling prices, new orders and employees -- is assigned a weight. The parameter weights are then applied to these ratios and the results aggregated to arrive at the composite BOI.
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