Dark clouds: Corporate optimism at all-time low, cost cutting top priority

In findings which will not surprise too many, a detailed optimism survey of corporate CFOs conducted by leading business information and insights firm Dun & Bradstreet has found such optimism among India Inc’s finance bosses relating to the macroeconomic prospects at an all-time low. Worse, the pessimism is not restricted to a particular segment but is across both the manufacturing and services sectors.

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The sharp fall in the rupee, the consequent liquidity squeeze imposed by the Reserve Bank of India (RBI) and expectations of a reversal of the lower interest rate regime, together with the increasing global crude oil prices have taken a severe toll on the confidence of the Indian CFO community.

In the pan-India survey, corporate CFOs were asked about their confidence in the overall financial and macro-economic conditions for Q3 2013 (July-September of the calendar year 2013), as compared to the same quarter of the previous year.

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[caption id=“attachment_1002565” align=“alignleft” width=“380”]  D&B India CFO Survey finds optimism on macro conditions for Q3 very low; hedging, recovery tools crucial as financial risk grows[/caption]

The survey deals with optimism levels among CFOs with respect to the overall financial health of their companies, the business risk environment and the macroeconomic scenario in the country.

The key findings of the survey are:

**•**The Dun and Bradstreet Composite CFO Optimism Index for Q3 2013 stands at an all time low. The Composite CFO Optimism Index for Q3 2013 has fallen by 4.1 percent on ay-o-y basis and by 3.4 percent on a q-o-q basis.

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• Optimism among the CFOs in both the manufacturing and services sector regarding the overall macroeconomic condition for Q3 2013 remains very low as compared to the year ago period.

• The percentage of CFOs who perceive an increase in the level of financial risk on their company’s balance sheet as compared to the year ago period has been steadily increasing over the past 6 quarters.

• Around 87 percent of the surveyed CFOs revealed that they expect the level of financial risk for the corporate sector as a whole to increase or remain the same as compared to the previous year quarter

• The survey reveals that around 39 percent of the CFOs consider risk management tools to be their priority during the following six months as compared to 30 percent in the previous quarter.

• Hedging (44 percent of CFOs) and effective recovery system (41 percent of CFOs) would be the preferred tool for risk management for the CFOs during the next six months.

• The percentage of CFOs expecting an increase in the availability of funds in Q3 has come down to just around 37 percent compared to the first quarter of 2013, when around 50 percent saw an increase.

• Reducing cost remains the topmost priority among the surveyed CFOs for the sixth consecutive quarter.

• Around 50 percent of the CFOs surveyed expect the operating margin of their company to increase during Q32013 as compared to the year ago period.

Arvind Raghav, Director-Risk Management Solution, Dun & Bradstreet India, says: “The CFO survey reveals that the optimism level among the CFOs remains the lowest in six quarters. The CFOs especially in the services sector are highly uncertain about how the developments in the domestic and global economy pans out in the forthcoming quarter.”

The current domestic economic scenario calls for more strategic and proactive measures by the government which would address the long term development of the economy such as defining clear and strong investment laws and raising the competitiveness of the domestic economy rather than re-active policies to counter the sudden unexpected sharp slowdown in growth, he says.