quarters. 17. Dun & Bradstreet Composite CFO Optimism Index is at a 4-year low of CFOs expect level of financial ris
OPTIMISM INDEX May 2018
India | Q2 2018
Dun & Bradstreet Composite CFO Optimism Index is at a 4-year low Optimism levels for financial performance of the company is the lowest in quarters
17
Optimism level amongst CFOs in the services sector is the lowest in
17quarters
35% ` `
of CFOs indicated need for raising long term funds years highest in
3
of CFOs expect level of financial risks on company's balance sheet to increase, highest in quarters
17
Reducing cost Risk management Cash flow management Organic expansions Business restructuring Mergers & Acquisitions Capex plan Reducing leverage
25% of CFOs expect cost of raising funds to years increase - highest in
4
Dividend declaration
Since Q2 2017, CFOs have stated that Reducing cost has been their top priority and Dividend declaration as their least priority
CFO OPTIMISM INDEX CFO Optimism Index * The Composite CFO Optimism Index declined by
140
17.8%, on a q-o-q basis, to 96.2 during Q2 2018 – lowest in 4 years
130 120
* Optimism levels decreased both for financial
110
90
performance of the company and macroeconomic scenario. Decrease in optimism was steeper for macroeconomic scenario (-20%; q-o-q) than financial performance of the company (-16.2%; q-o-q)
80
* Optimism levels for financial performance of the
100
company is the lowest in 17 quarters (Q2 2014) Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018
70
Note: Values represent index level
CFO optimism on a sectoral basis * Optimism level amongst CFOs in the services sector is
135
the lowest in 17 quarters (i.e. since Q2 2014) and in the industrial sector, it is the lowest since Q4 2017
125
* Optimism level amongst CFOs in the services sector
for macroeconomic scenario decreased by 28.9% (qo-q), while optimism level amongst CFOs in the industrial sector for the same declined by 5.8% (q-o-q)
115
* Optimism level amongst CFOs in the industrial sector
95
for financial performance of the company is the lowest since Q2 2014
85
105
Q1 2017
Q2 2017
Q3 2017
Industrial sector
Q4 2017
Q1 2018
Q2 2018
Services sector
Note: Values represent index level
Optimism at the company level Increase
Decrease
The operating margin of your company
58
Liquidity position of your company Level of financial risks on company’s balance sheet Need for raising short-term funds
50
25
Cost of raising funds from the market Availability of funds in the market
0%
* 25% of CFOs expect cost of raising funds to increase -
highest in 4 years
58 66 9
56
19
20%
market to increase - lowest in four-and-a-half years
50
14
35
36
* Only 36% of CFOs expect availability of funds in the
41
19
9
25
28
10
28
Need for raising long-term funds
funds - highest in 3 years
14
31
Risk appetite in current scenario
* 35% of CFOs indicated need for raising long term
No Change
56 14
40%
50 60%
80%
100%
Note: Values represent % of total responses
II
CFO OPTIMISM INDEX Optimism at the company level * 26% of CFOs in the industrial sector have indicated
need for raising short term funds - lowest since Q2 2012
Availability of funds in the market Cost of raising funds from the market* Need for raising long-term funds Need for raising short-term funds Risk appetite in current scenario Level of financial risks on company’s balance sheet* Liquidity position of your company The operating margin of your company
* 31% of CFOs expect level of financial risks on
company's balance sheet to increase, highest in 17 quarters * 34% of CFOs in the services sector expect availability
of funds in the market to increase - lowest since Q2 2012 10
20
Q1 2018
30
40
50
60
Q4 2017
Note: % of CFOs indicating increase for the parameters *Values for the parameter represent % of CFOs indicating decrease for the respective quarters
Optimism at the macro level * 55% of CFOs have indicated overall scenario for
mergers & acquisitions to be favourable during Q2 2018 * 61% of CFOs have indicated domestic macro-
economic scenario to be favourable in Q2 2018, barring Q1 2017, it is the lowest since Q3 2014
Favourable Domestic macro-economic scenario for Indian corporate
61
Global macro-economic scenario for corporate sector
* 39% of CFOs expect level of financial risks for
corporate sector as a whole to increase, highest in 9 quarters
Unfavourable
Level of financial risks for corporate sector as a whole* 0%
14
48
Overall scenario for Mergers & Acquisitions
37 8
39 20%
24
16
55 8
No Change
37 53
40%
60%
80%
100%
Note: Values represent % of total responses. *For level of financial risks for the corporate sector as a whole, unfavourable means increase
Optimism at the macro level * 57% of CFOs in the industrial sector expect global Level of financial risks for corporate sector as a whole*
macro-economic situation to be favourable in Q2 2018 as compared to 43% of CFOs in the services sector
Overall scenario for Mergers & Acquisitions
* 72% of CFOs in the industrial sector expect domestic
macro-economic situation to be favourable in Q2 2018 as compared to 56% of CFOs in the services sector
Global Macro-economic scenario for corporate sector
* 44% of CFOs in the services sector expect the level of
Domestic macro-economic scenario for Indian corporates 0
20 Q1 2018
40
60
80
financial risks for corporate sector as a whole to increase as compared to 28% of CFOs in the industrial sector
Q4 2017
Note: % of CFOs indicating favourable for the parameters *Values for the parameter represent % of CFOs indicating decrease for the respective quarters
III
CFO OPTIMISM INDEX CFO Priority during the next six months * Since Q2 2017, CFOs have stated that Reducing cost Capex plan
has been their top priority and Dividend declaration as their least priority
Expansion through M&A
* 45% of CFOs in the industrial sector have stated risk
Organic expansions Business restructuring
management to be their priority in the next six months, as compared to 30% of CFOs in the services sector
Reducing leverage
* Percentage of CFOs stating reducing leverage (16%)
Dividend declaration
as their priority is the lowest since Q4 2015
Risk management Cash flow management Reducing cost
0
10
20 Q1 2018
30
40
50
60
70
Q4 2017
Note: % of CFO who rated each of the parameters as their strong priority
Risk management tool to be adopted during the next six months * Effective recovery system has been the most preferred
risk management tool by CFOs for 5 consecutive quarters
Hedging
* 47% of CFOs have indicated an increase in close
Tightening credit appraisal mechanisms
monitoring of strategic accounts in the next six months, highest since Q2 2017 * Only 21% of CFOs have stated to adopt hedging as
their risk management tool for the next six months, lowest since Q2 2012
Effective portfolio management Increase in close monitoring of strategic accounts Effective recovery system 15
Q1 2018
25
35
45
55
Q4 2017
Note: % of CFOs who stated each of the risk management tools to be adopted
Research Team Dr. Arun Singh Dipshikha Biswas Raj Kiran The D&B CFO Optimism Index is arrived at on the basis of a quarterly survey of CFO expectations regarding the financial state of their company as well as overall macroeconomic scenario.
Methodology For the purpose of conducting the survey, a sample of companies belonging to basic goods, capital goods, intermediate goods, consumer durables, consumer non-durables and the services sector is selected randomly from Dun & Bradstreet's commercial credit information file. The sample selected is a microcosmic representation of India's business community. All the respondents in the survey are asked a set of questions regarding the financial performance of their companies and the overall macroeconomic scenario for the corporate sector in the forthcoming period. The CFOs are asked to state their expectations as to whether the specified parameters pertaining to their respective companies and the overall macroeconomic scenario will register an increase, decrease or show no change in the ensuing quarter as compared to the same quarter in the previous year. Two broad indices, optimism at the company level and optimism at the macroeconomic level, each consisting of 8 and 4 sub-parameters respectively, are then designed.
CFO Optimism Index Dun & Bradstreet introduced the Composite CFO Optimism Index from Q3 2013. The purpose of the Composite CFO Optimism Index is to capture the aggregate behaviour of the two broad indices. Each of the 12 parameters under the two broad indices has a weight assigned to it. For calculating the Composite CFO Optimism Index, the positive responses for each of these parameters for the period under review are expressed as a proportion of positive responses in the base period (Q2 2012). The parameter weights are then applied to these ratios and the results aggregated to arrive at the Composite CFO Optimism Index. For the purpose of the survey, Q1 is the period between January and March, Q2 is the period between April and June, Q3 is the period between July and September and Q4 is the period between October and December each year. We trust that you will find the D&B CFO Optimism Index as a useful tool in your day-to-day decision making. For a copy of the CFO Optimism Index, write to: Dr. Arun Singh, Lead Economist. Dun & Bradstreet Information Services India Pvt. Ltd., ICC Chambers, Saki Vihar Road, Powai, Mumbai 400 072 CIN: U74140MH1997PTC107813 | Tel : 91-22-28574190 / 92 / 94 | Fax : 91-22-28572060 | email:
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