BT Business Confidence Index: Here's why business confidence was highest during the December 2023 quarter in 8 years

Shrugging off the impact of two ongoing wars across the world, Indian businesses now seem to be on a firmer footing and optimistic about the future. This is reflected in the BT-C Fore Business Confidence Survey of 500 chief executive officers (CEOs) and chief financial officers (CFOs) for the October-December 2023 quarter, which touched its highest level since the April-June 2015 quarter.

The Business Confidence Index (BCI) rose to 56.5 in the December quarter, which was marginally higher than the 54.1 in the previous quarter. However, before this, the BCI had touched a high of 57.4 in April-June 2015, after which it had been on a gradual decline and plunged to a low of 43.2 in the June 2021 quarter.

Recent data suggests that the domestic economy is showing strength even in the face of a less favourable global situation. The first Advance Estimates of national income pegged gross domestic product (GDP) growth at 7.3% this fiscal, compared to 7.2% in FY23, belying expectations of a slowdown. While economic growth is seen to have slowed down during the second half of the fiscal year, high-frequency indicators reveal that demand and consumption have remained robust even after the festive season.

Aditi Nayar, Chief Economist and Head of Research and Outreach at rating agency ICRA, says factors such as a high base, along with the tepid outlook for agricultural output and rural demand, and a potential slowdown in government capex growth are contributing to the expected slowdown in economic growth in the second half of the current fiscal year. “We have revised our growth projection for the fiscal to 6.5%, and expect a milder slowdown in the second half compared to our earlier estimate,” says Nayar.

The latest BCI reveals that business confidence has improved across all sectors. With a reading of 58.6, light industries that comprise businesses related to food products, beverages, textiles, wood, furniture, paper, publishing, and leather stand out as the most optimistic in the December quarter.

Besides, there has been an uptick in confidence across business sizes, with big businesses being the most optimistic with a score of 60.2. Micro businesses, on the other hand, continue to face challenges, resulting in a more subdued sentiment at 52.3.

Madhavi Arora, Lead Economist at Emkay Global Financial Services, says business confidence is not just about the headline GDP numbers, but is a function of many things, such as the regulatory and policy environment, lower inflation, policy and political certainty, and the phase of the business cycle.

“The fourth quarter of the fiscal is on track. Growth is likely to be slower in the second half of the current fiscal compared to the first half. Companies may not enjoy the same kind of margins as they did in the first half. GDP growth in H2FY24 is likely to be about 6.5% and we expect full fiscal growth to be not more than 7% when the final print is released,” she notes.

Firms remain upbeat about Q4 of FY24 and have indicated further improvement in the overall economic situation, with a rating of 5.6 out of 10 for the quarter, compared to 5.2 in the previous quarter. Demand conditions, profitability, and hiring are also seen to be better, but sentiments towards hiring remained relatively subdued, with a rating of 5.5 (see chart). According to Arora, hiring sentiments might be dampened with companies already having hired more than required in the past year, anticipating higher demand and movement of workers.

The picture is not all hunky-dory. Worries about rural demand and consumption plague 68% of the respondents of the survey, while 72% believe that the upcoming General Elections will have an impact on government capex spending. “The growth in demand and consumption is uneven, with high demand seen in some income groups in urban areas. Rural demand is muted as sentiments are cautious due to uneven monsoon rains and concerns related to rabi crop output. Commodity prices remain benign relative to year-ago levels, giving more confidence to manufacturers,” Nayar notes.

India Inc. also remains worried about weaker demand, with 71% of the respondents identifying it as their top concern; for 16%, a continued export slowdown was the chief worry. The spectre of price pressures also remains a worry and food inflation was the top concern for 9% of those surveyed.

The Interim Budget and finance ministry calculations indicate that the economy is on a much stronger footing, even though the General Elections may create some uncertainty. But it is clear that businesses now are more confident in dealing with them.

@surabhi_prasad