Firm Footing: The BT-C Fore Business Confidence Index touches a 6-quarter high

Six months into financial year 2023-24 (FY24), the Indian economy seems to be on firm footing, nimbly meeting unforeseen challenges, as it looks poised to grow 6.5 per cent this fiscal. This is reflected in the faith businesses are reposing in the country’s ability to navigate the turbulence—both domestic and global. They are also upbeat about festive season demand, despite some anxiety over the fallout of the Israel-Hamas war and its impact on oil prices and global economic stability.

This sentiment is apparent from the BT-C Fore Business Confidence Survey (of 500 CEOs and CFOs) for the July–September quarter (Q2) of FY24. The Business Confidence Index (BCI) touched a six-quarter high of 54.1 in Q2FY24, as against 52.7 in Q1FY24. Before this, the BCI had touched a high of 55.2 in Q4FY22, when the economy had just begun recovering from two years of the Covid-19 pandemic.

In fact, the Q2FY24 reading is the second highest since Q2FY15, when the BCI was at 55.4. Since then, the reading had dipped progressively and remained below 50 in most quarters, up to the end of calendar year 2021.

A striking aspect of the latest survey is that micro businesses have also moved to a reading above 50 after a full year to log a score of 50.1 in terms of business confidence. The previous instance when it had moved above 50 was in Q2FY22, when it was 50.2.

Economists believe that businesses are more confident and that certain sectors are faring better than the others. Rajani Sinha, Chief Economist of credit rating agency CareEdge, notes that the business environment is positive except for the fact that capital expenditure (capex) has not picked up fully at the ground level and much of the heavy lifting on this front is still being done by the central government. “Companies in sectors such as steel and cement are gung-ho as they are benefitting from the government’s focus on capex. Companies in other sectors such as textiles and chemicals that have a higher dependence on external demand remain cautious,” she says. At present, the agency has retained its GDP growth forecast of 6.5 per cent for this fiscal. “India is doing reasonably well,” she says.

D.K. Joshi, Chief Economist of rating agency CRISIL, highlights the rising capacity utilisation. “Economic growth in the first quarter was strong and growth in the second quarter is likely to slow down somewhat. However, there are some signs of resilience, visible in investment activity, which is primarily led by the government.” The Purchasing Managers Index (PMI)—a gauge of economic trends for both manufacturing and services—has registered strong expansion, while

tax collections have been healthy. “Despite high inflation in the second quarter, which impacted discretionary spending, and weak exports, the economy has been doing well,” says Joshi.

In fact, the BCI reveals that 52 per cent of businesses are upbeat about a sustained economic recovery going forward. And now, with the festive months in full swing, firms remain confident about profits, hiring and demand in Q3FY24, compared with the previous fiscal, with the indices logging a score of 5.4, 5.3 and 5.6, respectively.

About 64 per cent of businesses expect improved demand this festive season, while 43 per cent are planning to hire more people to meet the rush. A silver lining has been lower core inflation, which has helped improve margins for about 48 per cent of respondents. That, in turn, is likely to help improve corporate profitability.

But it’s a rocky road and there is some guarded optimism on the economic situation in Q3FY24, with the index logging a marginally lower score of 5.2, as against 5.3 for the previous quarter.

Sinha of CareEdge warns that headwinds have grown in the past few months in the form of external uncertainty as well as a probability of high interest rates globally. “In the domestic economy, consumption demand remains skewed towards higher-end consumption. At the lower price points, consumption demand remains a concern. Rural demand has been muted and there have been concerns about the monsoon rains and kharif sowing that could further impact rural demand,” she further notes.

The Israel–Hamas war has also dented confidence to some extent. A third of the businesses surveyed were asked two additional questions about the impact of the conflict on their business prospects, and the results were sobering. As many as 49 per cent of respondents believe the conflict will impact their business in some way, while 61 per cent expect it to lead to higher inflation in Q3.

“For India, the major impact will be through oil prices, which, if sustained at high levels, can lead to higher inflation, current account deficit and fiscal pressures. Hence, it is a key monitorable,” Joshi notes.

There are numerous challenges and how each of these is navigated will be crucial not just for retaining business confidence, but also for ensuring a full recovery in private investments and maintaining the course of economic growth in FY25.

@surabhi_prasad