Q2 2014

Business Optimism Index

Dun & Bradstreet is pleased to send you the latest D&B Optimism Index for India. It is recognised as a product, which measures the pulse of the business community and serves as a reliable benchmark for investors. The D&B Optimism Index is arrived at on the basis of a quarterly survey of business expectations. Over time, this quarterly survey has emerged as a leading indicator of turning points in economic activity.

MethodologyFor 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 sectors 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 six standard questions regarding their expectations as to whether the following critical parameters pertaining to their respective companies will register an increase, decline or show no change in the ensuing quarter as compared to the same quarter in the prior year: Volume of Sales, Net Profits, Selling Prices, New Orders, Inventories and Employees. The individual indices are then calculated by subtracting the percentage of respondents expecting decreases from those expecting increases. Unless otherwise stated, increases and decreases in indices represent q-o-q changes.

Composite Business Optimism IndexDun & Bradstreet introduced the Composite Business Optimism Index from Q4 2002. The purpose of the Composite Business Optimism Index is to capture the aggregate behaviour of all the six individual indices. Each of the six parameters has a weight assigned to it. For calculating the Composite Business 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 1999). The parameter weights are then applied to these ratios and the results aggregated to arrive at the Composite Business 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 Optimism Index as a useful tool in your day-to-day decisionmaking. Please do give us your feedback in this regard.

April 2014

D&B Business Expectations Survey

Outlook for Q2 2014 - Key Highlights

Composite Business Optimism Index increases by 9.1% (y-o-y)

5 out of the 6 Optimism Indices register increases (y-o-y)

Optimism for Volume of Sales increases by 14 percentage points (y-o-y) to a 13-quarter high at 82%

Optimism for Net Profits increases by 2 percentage points (y-o-y) to 63%

Optimism for New Orders increases by 12 percentage points (y-o-y) to a 12-quarter high at 78%

Business Optimism Index 1Business Optimism Index 4

Employees

Inventory Levels Inventory Levels

Around 58% of the respondents expect their level of stock to increase during Q2 2014, while 32% expect their level of stock to remain unchanged. The remaining 10% of the respondents expect their inventory levels to decline during Q2 2014. The resultant Optimism Index for Inventory Levels stands at 48%, which is an increase of 12 percentage points when compared to Q2 2013. Amongst the sectors, the basic goods sector was more optimistic, while the consumer non-durables sector was less optimistic with regards to this parameter.

Employees

Around 55% of the respondents anticipate no change in the size of their workforce employed during Q2 2014. While 39% of the respondents intend to increase the number of employees, the remaining 6% expect the size of their workforce to decline. The resultant Optimism for Employees stands at 33%, a decrease of 5 percentage points when compared to Q2 2013. Amongst the sectors, the services sector was more optimistic regarding this parameter, while the consumer non-durables sector was less optimistic on this parameter.

India

Dun & Bradstreet

Dun & Bradstreet

CMYK

CMYK

For private circulation only

Copyright Dun & Bradstreet

Reproduction and transmission in any form without prior permission is prohibited. All rights reserved.

While Dun & Bradstreet endeavours to ensure accuracy of information contained in this publication, it does not accept any responsibility for any loss or damage to any person resulting from reliance on it.

For your free copy of the Business Optimism Index, write to :

Arun Singh

Dun & Bradstreet Information Services India Pvt Ltd

ICC Chambers, Saki Vihar Road, Powai, Mumbai 400 072

Tel : 91-22-28574190 / 92 / 94

Fax : 91-22-28572060

www.dnb.com

email: eag@mail.dnb.co.in

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®The Manufacturing ISM Report on Business (US Economy) is published monthly by the Institute for Supply Management™. The Institute for Supply Management™, established in 1915, is the world's leading educator of supply management professionals and is a valuable resource for decision makers in major markets, companies and Governments

®Extract from March Manufacturing ISM Report on Business (US Economy)Economic activity in the manufacturing sector expanded in March for the tenth consecutive month, and the overall economy grew for the 58th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®. The report was issued on April 1, 2014 by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The PMI registered 53.7 percent, an increase of 0.5 percentage point from February's reading of 53.2 percent, indicating expansion in manufacturing for the 10th consecutive month. The New Orders Index registered 55.1 percent, an increase of 0.6 percentage point from February's reading of 54.5 percent. The Production Index registered 55.9 percent, a substantial increase of 7.7 percentage points compared to February's reading of 48.2 percent. Employment grew for the ninth consecutive month, but at a lower rate by 1.2 percentage points, registering 51.1 percent compared to February's reading of 52.3 percent. Of the 18 manufacturing industries, 14 are reporting growth in March…”

Manufacturing expanded in March as the PMI registered 53.7 percent, an increase of 0.5 percentage points when compared to February's reading of 53.2 percent. ISM's New Orders Index registered 55.1 percent in March, an increase of 0.6 percentage point when compared to the February reading of 54.5 percent. ISM's Production Index registered 55.9 percent in March, which is an increase of 7.7 percentage points when compared to the 48.2 percent reported in February. The Inventories Index registered 52.5 percent in March, the same reading as reported in February, and indicates that inventories are growing for the second consecutive month, following two consecutive months of contraction. The ISM Prices Index registered 59 percent in March, which is a decrease of 1 percentage point compared to the February reading of 60 percent. ISM's Employment Index registered 51.1 percent in March, which is a decrease of 1.2 percentage points when compared February's reading of 52.3 percentage points, and represents the ninth consecutive month of growth in employment.

Business Optimism Index 3Business Optimism Index 2

D&B Optimism Index for India for Q2 2014

D&B Business Optimism survey for Q2 2014 was conducted in March 2014, when the economy was gearing up for the forthcoming general elections. Even as business sentiment continues to be plagued by both economic and political uncertainty, a sense of confidence appears to be slowly returning. Expectations of revival in investment activity due to partial resolution of stalled infrastructure projects, large equity inflows into India and decline in inflationary pressure could be partly responsible for the trigger in business sentiment. Notwithstanding the positive sentiment, India Inc continues to exercise caution and restraint in light of continued weak performance of industry, increase in risks to agriculture from the possible El Nino phenomena and uncertainty around key government policies.

The economy's report card in the last quarter has been a mixed bag, marked by encouraging progress in some areas but only piecemeal or non-existent progress in others. A sharp decline in current account deficit in Q2 FY14 and Q3 FY14 has helped in mitigating external sector vulnerabilities. The RBI's swap windows for banks' mobilisation of fresh FCNR (B) deposits and overseas borrowing have helped India's Foreign Exchange buffer. This, in conjunction with revival of portfolio flows have aided the RBI in shoring up forex reserves to US$ 298.6 bn as on 21- Mar-14, an accretion of US$ 23.1 bn over end-Aug 13. The volatility and downward pressure on the currency has concomitantly receded; the rupee has moved in a narrow rangeof 60.10 to 61.90 per US dollar during Mar 14.

On the price front, even as inflation continues to remain well above RBI's comfort levels, it is showing some sign of moderation. CPI inflation has declined to a 25-month low of 8.1% in Feb 14 from 11.2% in Nov 13, primarily due to declining vegetable prices. Risks to the inflation outlook however remain tilted to the upside, emanating from a spike in food prices in the event of poor monsoon. Any shocks to oil prices (in the event of geo-political tensions) could also stoke price pressures on crude oil.

Clear signs of economic recovery are yet to emerge; GDP growth

has been at sub-5% for seven successive quarters. Also, the Index of Industrial Production (IIP) growth has been stagnating for two successive years, reflecting subdued investment and consumption demand. Concerns have intensified regarding the quality of fiscal consolidation. Fiscal deficit data for Apr-Feb 2014 indicate that the fiscal deficit might increase further and cross the revised estimate announced during Interim Budget. Increase in the fiscal deficit has the potential to derail the growth momentum. The recovery of Indian economy is heavily contingent on the stable political outcome emerging after the Parliamentary election. Moreover, bold structural reform measures by the Government to revive the investment cycle could also provide a significant boost to business confidence in the forthcoming quarter.

Reflecting the prevailing economic scenario, the D&B Composite Business Optimism Index during Q2 2014 recorded an increase of 9.1% over the year-ago quarter. On a q-o-q basis, the BOI for Q2 2014 remained almost flat. Based on the responses received, it was observed that five out of the six optimism indices – namely, Volume of Sales, Net Profits, New Orders, Selling Prices and Inventory levels have registered an increase as compared to Q2 2013. In fact, it was observed that optimism for Volume of Sales is at a 13-quarter high while that of New Orders is at a 12-quarter high. This is reflective of incipient signs of demand revival in the economy. The respondents from the basic goods sectors were particularly more optimistic regarding Volume of Sales and New Orders for Q2 2014, with the resultant optimism for both these indices at an all-time high. The clearances awarded to projects under implementation by the Cabinet Committee on Investments (CCI) and a pickup in new project announcements could have partially played a role herein. The Indian corporate sector's restrained confidence regarding profit expectations hints towards the impending pressure on business margins in the quarter ahead.

Q2 expectations for each of the six parameters and their comparisons with those of the previous quarters are discussed on the following pages.

Volume of Sales

A significant majority of the respondents expect volume of sales to increase (85%) in Q2 2014. While 3% of the respondents anticipate the sales volume to decline, the remaining 12% of the respondents expect volume of sales to remain unchanged in Q2 2014. The resultant Optimism for Volume of Sales stands at a 13-quarter high at 82%, which is an increase of 14 percentage points when compared to Q2 2013. Amongst the sectors, the basic goods sector was the most optimistic, while the intermediate goods sector was the least optimistic on this parameter.

Volume of Sales

Dun & Bradstreet Dun & Bradstreet

CMYK

CMYK

Net Profits

Around 68% of the respondents expect an increase in profits during Q2 2014, while 27% indicated that they expect no change in net profits. About 5% of the respondents expect their net profits to decline. The resultant Optimism for Net profits stands at 63%, which is an increase of 2 percentage points when compared to Q2 2013 and a decrease of 10 percentage points when compared to Q1 2014. Amongst the sectors, the basic goods sector was the most optimistic, while the intermediate goods and consumer non-durables sectors were the least optimistic on this parameter.

Selling Prices

Around 41% of the respondents expect the selling price of their products to increase during Q2 2014. While 54% of the respondents anticipate no change in selling prices, the remaining 5% of the respondents expect a decline in selling prices. The resultant Optimism for Selling Prices stands at 36% - an increase of 6 percentage points as compared to Q2 2013. Amongst the sectors, the basic goods sector was the most optimistic, while the capital goods sector was the least optimistic on this parameter.

New Orders

Around 81% of the respondents expect their order book position to improve during Q2 2014. While 16% of the respondents anticipate no change in the new orders received, the remaining 3% expect new orders to decline. The resultant Optimism for New Orders stands at a 12-quarter high of 78%, which is an increase of 12 percentage points when compared to Q2 2013. Amongst the sectors, the basic goods sector was the most optimistic, while the intermediate goods and consumer non-durables sectors were less optimistic regarding this parameter.

New Orders

Selling Prices

Net Profits

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®The Manufacturing ISM Report on Business (US Economy) is published monthly by the Institute for Supply Management™. The Institute for Supply Management™, established in 1915, is the world's leading educator of supply management professionals and is a valuable resource for decision makers in major markets, companies and Governments

®Extract from March Manufacturing ISM Report on Business (US Economy)Economic activity in the manufacturing sector expanded in March for the tenth consecutive month, and the overall economy grew for the 58th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®. The report was issued on April 1, 2014 by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The PMI registered 53.7 percent, an increase of 0.5 percentage point from February's reading of 53.2 percent, indicating expansion in manufacturing for the 10th consecutive month. The New Orders Index registered 55.1 percent, an increase of 0.6 percentage point from February's reading of 54.5 percent. The Production Index registered 55.9 percent, a substantial increase of 7.7 percentage points compared to February's reading of 48.2 percent. Employment grew for the ninth consecutive month, but at a lower rate by 1.2 percentage points, registering 51.1 percent compared to February's reading of 52.3 percent. Of the 18 manufacturing industries, 14 are reporting growth in March…”

Manufacturing expanded in March as the PMI registered 53.7 percent, an increase of 0.5 percentage points when compared to February's reading of 53.2 percent. ISM's New Orders Index registered 55.1 percent in March, an increase of 0.6 percentage point when compared to the February reading of 54.5 percent. ISM's Production Index registered 55.9 percent in March, which is an increase of 7.7 percentage points when compared to the 48.2 percent reported in February. The Inventories Index registered 52.5 percent in March, the same reading as reported in February, and indicates that inventories are growing for the second consecutive month, following two consecutive months of contraction. The ISM Prices Index registered 59 percent in March, which is a decrease of 1 percentage point compared to the February reading of 60 percent. ISM's Employment Index registered 51.1 percent in March, which is a decrease of 1.2 percentage points when compared February's reading of 52.3 percentage points, and represents the ninth consecutive month of growth in employment.

Business Optimism Index 3Business Optimism Index 2

D&B Optimism Index for India for Q2 2014

D&B Business Optimism survey for Q2 2014 was conducted in March 2014, when the economy was gearing up for the forthcoming general elections. Even as business sentiment continues to be plagued by both economic and political uncertainty, a sense of confidence appears to be slowly returning. Expectations of revival in investment activity due to partial resolution of stalled infrastructure projects, large equity inflows into India and decline in inflationary pressure could be partly responsible for the trigger in business sentiment. Notwithstanding the positive sentiment, India Inc continues to exercise caution and restraint in light of continued weak performance of industry, increase in risks to agriculture from the possible El Nino phenomena and uncertainty around key government policies.

The economy's report card in the last quarter has been a mixed bag, marked by encouraging progress in some areas but only piecemeal or non-existent progress in others. A sharp decline in current account deficit in Q2 FY14 and Q3 FY14 has helped in mitigating external sector vulnerabilities. The RBI's swap windows for banks' mobilisation of fresh FCNR (B) deposits and overseas borrowing have helped India's Foreign Exchange buffer. This, in conjunction with revival of portfolio flows have aided the RBI in shoring up forex reserves to US$ 298.6 bn as on 21- Mar-14, an accretion of US$ 23.1 bn over end-Aug 13. The volatility and downward pressure on the currency has concomitantly receded; the rupee has moved in a narrow rangeof 60.10 to 61.90 per US dollar during Mar 14.

On the price front, even as inflation continues to remain well above RBI's comfort levels, it is showing some sign of moderation. CPI inflation has declined to a 25-month low of 8.1% in Feb 14 from 11.2% in Nov 13, primarily due to declining vegetable prices. Risks to the inflation outlook however remain tilted to the upside, emanating from a spike in food prices in the event of poor monsoon. Any shocks to oil prices (in the event of geo-political tensions) could also stoke price pressures on crude oil.

Clear signs of economic recovery are yet to emerge; GDP growth

has been at sub-5% for seven successive quarters. Also, the Index of Industrial Production (IIP) growth has been stagnating for two successive years, reflecting subdued investment and consumption demand. Concerns have intensified regarding the quality of fiscal consolidation. Fiscal deficit data for Apr-Feb 2014 indicate that the fiscal deficit might increase further and cross the revised estimate announced during Interim Budget. Increase in the fiscal deficit has the potential to derail the growth momentum. The recovery of Indian economy is heavily contingent on the stable political outcome emerging after the Parliamentary election. Moreover, bold structural reform measures by the Government to revive the investment cycle could also provide a significant boost to business confidence in the forthcoming quarter.

Reflecting the prevailing economic scenario, the D&B Composite Business Optimism Index during Q2 2014 recorded an increase of 9.1% over the year-ago quarter. On a q-o-q basis, the BOI for Q2 2014 remained almost flat. Based on the responses received, it was observed that five out of the six optimism indices – namely, Volume of Sales, Net Profits, New Orders, Selling Prices and Inventory levels have registered an increase as compared to Q2 2013. In fact, it was observed that optimism for Volume of Sales is at a 13-quarter high while that of New Orders is at a 12-quarter high. This is reflective of incipient signs of demand revival in the economy. The respondents from the basic goods sectors were particularly more optimistic regarding Volume of Sales and New Orders for Q2 2014, with the resultant optimism for both these indices at an all-time high. The clearances awarded to projects under implementation by the Cabinet Committee on Investments (CCI) and a pickup in new project announcements could have partially played a role herein. The Indian corporate sector's restrained confidence regarding profit expectations hints towards the impending pressure on business margins in the quarter ahead.

Q2 expectations for each of the six parameters and their comparisons with those of the previous quarters are discussed on the following pages.

Volume of Sales

A significant majority of the respondents expect volume of sales to increase (85%) in Q2 2014. While 3% of the respondents anticipate the sales volume to decline, the remaining 12% of the respondents expect volume of sales to remain unchanged in Q2 2014. The resultant Optimism for Volume of Sales stands at a 13-quarter high at 82%, which is an increase of 14 percentage points when compared to Q2 2013. Amongst the sectors, the basic goods sector was the most optimistic, while the intermediate goods sector was the least optimistic on this parameter.

Volume of Sales

Dun & Bradstreet Dun & Bradstreet

CMYK

CMYK

Net Profits

Around 68% of the respondents expect an increase in profits during Q2 2014, while 27% indicated that they expect no change in net profits. About 5% of the respondents expect their net profits to decline. The resultant Optimism for Net profits stands at 63%, which is an increase of 2 percentage points when compared to Q2 2013 and a decrease of 10 percentage points when compared to Q1 2014. Amongst the sectors, the basic goods sector was the most optimistic, while the intermediate goods and consumer non-durables sectors were the least optimistic on this parameter.

Selling Prices

Around 41% of the respondents expect the selling price of their products to increase during Q2 2014. While 54% of the respondents anticipate no change in selling prices, the remaining 5% of the respondents expect a decline in selling prices. The resultant Optimism for Selling Prices stands at 36% - an increase of 6 percentage points as compared to Q2 2013. Amongst the sectors, the basic goods sector was the most optimistic, while the capital goods sector was the least optimistic on this parameter.

New Orders

Around 81% of the respondents expect their order book position to improve during Q2 2014. While 16% of the respondents anticipate no change in the new orders received, the remaining 3% expect new orders to decline. The resultant Optimism for New Orders stands at a 12-quarter high of 78%, which is an increase of 12 percentage points when compared to Q2 2013. Amongst the sectors, the basic goods sector was the most optimistic, while the intermediate goods and consumer non-durables sectors were less optimistic regarding this parameter.

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2013 2014

Q2 2014

Business Optimism Index

Dun & Bradstreet is pleased to send you the latest D&B Optimism Index for India. It is recognised as a product, which measures the pulse of the business community and serves as a reliable benchmark for investors. The D&B Optimism Index is arrived at on the basis of a quarterly survey of business expectations. Over time, this quarterly survey has emerged as a leading indicator of turning points in economic activity.

MethodologyFor 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 sectors 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 six standard questions regarding their expectations as to whether the following critical parameters pertaining to their respective companies will register an increase, decline or show no change in the ensuing quarter as compared to the same quarter in the prior year: Volume of Sales, Net Profits, Selling Prices, New Orders, Inventories and Employees. The individual indices are then calculated by subtracting the percentage of respondents expecting decreases from those expecting increases. Unless otherwise stated, increases and decreases in indices represent q-o-q changes.

Composite Business Optimism IndexDun & Bradstreet introduced the Composite Business Optimism Index from Q4 2002. The purpose of the Composite Business Optimism Index is to capture the aggregate behaviour of all the six individual indices. Each of the six parameters has a weight assigned to it. For calculating the Composite Business 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 1999). The parameter weights are then applied to these ratios and the results aggregated to arrive at the Composite Business 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 Optimism Index as a useful tool in your day-to-day decisionmaking. Please do give us your feedback in this regard.

April 2014

D&B Business Expectations Survey

Outlook for Q2 2014 - Key Highlights

Composite Business Optimism Index increases by 9.1% (y-o-y)

5 out of the 6 Optimism Indices register increases (y-o-y)

Optimism for Volume of Sales increases by 14 percentage points (y-o-y) to a 13-quarter high at 82%

Optimism for Net Profits increases by 2 percentage points (y-o-y) to 63%

Optimism for New Orders increases by 12 percentage points (y-o-y) to a 12-quarter high at 78%

Business Optimism Index 1Business Optimism Index 4

Employees

Inventory Levels Inventory Levels

Around 58% of the respondents expect their level of stock to increase during Q2 2014, while 32% expect their level of stock to remain unchanged. The remaining 10% of the respondents expect their inventory levels to decline during Q2 2014. The resultant Optimism Index for Inventory Levels stands at 48%, which is an increase of 12 percentage points when compared to Q2 2013. Amongst the sectors, the basic goods sector was more optimistic, while the consumer non-durables sector was less optimistic with regards to this parameter.

Employees

Around 55% of the respondents anticipate no change in the size of their workforce employed during Q2 2014. While 39% of the respondents intend to increase the number of employees, the remaining 6% expect the size of their workforce to decline. The resultant Optimism for Employees stands at 33%, a decrease of 5 percentage points when compared to Q2 2013. Amongst the sectors, the services sector was more optimistic regarding this parameter, while the consumer non-durables sector was less optimistic on this parameter.

India

Dun & Bradstreet

Dun & Bradstreet

CMYK

CMYK

For private circulation only

Copyright Dun & Bradstreet

Reproduction and transmission in any form without prior permission is prohibited. All rights reserved.

While Dun & Bradstreet endeavours to ensure accuracy of information contained in this publication, it does not accept any responsibility for any loss or damage to any person resulting from reliance on it.

For your free copy of the Business Optimism Index, write to :

Arun Singh

Dun & Bradstreet Information Services India Pvt Ltd

ICC Chambers, Saki Vihar Road, Powai, Mumbai 400 072

Tel : 91-22-28574190 / 92 / 94

Fax : 91-22-28572060

www.dnb.com

email: eag@mail.dnb.co.in

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2013 2014

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2013 2014