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'India Inc suffering from low confidence'

business Updated: May 29, 2007 01:10 IST
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The feel-good fabric worn by India Inc for the last two years appears to be fading, as rising credit costs begin to hit the overall business confidence of the industry, a FICCI survey revealed.

The chamber's Business Confidence Survey (BCS), based on responses from 418 companies, showed that the assessment made by corporate India with regard to economic industry and firm level performance has moderated.

"The overall Business Confidence Index has taken a beating compared with the index in the third quarter of 2006-07, down from 75 to 69.

"However, at the enterprise level, a larger per centage of firms expect to export and invest more and generate additional employment in the next six months, while fewer firms anticipate higher profits and sales," a FICCI statement said.

The three confidence indices -- the Current Conditions Index, the Expectations Index and the Overall Business Confidence Index -- computed by the chamber have dipped, showing reduced confidence level among the Indian corporates.

These indices have dropped from Significantly Optimistic zone in the last quarter to the Moderately Optimistic zone in this quarter.

A high 42 per cent of the companies surveyed complained of rising cost of credit as an impediment for their businesses. Of this, 80 per cent of the companies belong to the Small and Medium Enterprises sector.

Of the respondents, 68 per cent expect higher sales against 78 per cent in last quarter, 30 per cent foresee an increase in selling prices against 20 per cent of the respondents last quarter and 50 per cent expect the profits to go higher in the next sixth months.

Around 56 per cent of the companies expect much higher investment in next six months against 45 per cent of the respondents in last quarter.

Sixty four per cent of the respondents found the current overall economic conditions to be 'moderately to substantially better' than in the last six months while in the previous round of the survey 78 per cent of the respondents has expressed the same view.

While 22 per cent of the participating companies feel that the current overall economic conditions have not changed in the last six months, the remaining 14 per cent felt that the economic situation has deteriorated over the last two quarters.

About 59 per cent of the participants expect the overall economic conditions in the following six months to be moderately to substantially better which is much less than the 72 per cent who had expressed the same view with regard to the economy in the last BCS.

Those expecting the economic conditions to remain the same over the next six months has dropped from 25 per cent in the previous survey to 18 per cent.

Expectations regarding industry performance in the near future have also dampened with 61 per cent of the respondents reporting 'moderately to substantially better performance' of their respective industry sectors over the next six months.

As for the package of anti-inflationary measures introduced by the RBI, industries like food processing, textiles, construction and automobiles are apprehensive about a decline in demand and profits in the near term.

Basic and intermediate goods industries such as basic metals and alloys, cement, chemicals and non-metallic mineral products, which do not depend upon direct consumer spending, are looking forward to be more buoyant.

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