Even though 74% of Indian CFOs are optimistic about increase in revenues in the next one year, given the uncertain global economy and growth being concentrated in certain sectors of the domestic economy, the CFOs were almost equally divided on whether it was the right time to take risks. An ‘India CFO Survey 2016’ conducted by Deloitte, points out that the outlook on operating margins looks uncertain wherein 48% of CFOs expect increase in margins while 52% expect reduction or no change in margins.
Encouragingly, 58% of Indian CFOs believe their capital expenditure will increase over the next one year giving credence to the fact that there were some green shoots of recovery in the investment cycle. More than 60% of Indian CFOs believe that they have seen an improvement in the investment climate over the past one year. Another silver lining in the Deloitte report is that almost 45% Indian CFOs are expecting that companies would increase their headcount.
“A key element in the current economic recovery is the pace of investments and the belief that taking risks would be productive and, as such, we have not seen that sentiment being expressed by Indian CFOs in our latest survey”, said Deloitte Spokesperson from India. “The percentage of CFOs who are positive about the current developments have however, increased from last year. These findings show that the CFOs are willing to support the government with more time to bring about the structural change that would give growth a more sustainable and meaningful boost”.
Both working capital requirements and cash holdings are expected to increase for companies over the next one year, which probably implies that they expect a higher inflation in both goods and services. On the availability of credit the responses were mixed with a majority of CFOs saying that credit was available at a higher cost. This seems to be counter intuitive in a year when the borrowing cost for banks have come down. However, this could possibly be based on the belief that banks would find it hard to lend due to the impending structural constraints and increasing risk aversion in the face of the ensuing slowdown in a number of sectors.
CFOs continue to remain optimistic about Indian economy and ease of doing business
90% of the CFOs in their response to Deloitte were optimistic about the mid-term outlook and 94% of them have expressed their confidence on the economy even in the long term. Factors such as lower commodity prices including oil prices, and lower inflation bode well in the short term. Around 60% of the executives reported a marginal improvement in ease of doing business in India, while 35% of them have seen no change. However, a lot needs to be done to improve India’s ranking further in the World Bank’s “Doing Business” report.
Close to 60% of the survey participants have expressed satisfaction on the timeline and effectiveness of the government initiatives. Various programs and schemes such as ‘Make in India’, ‘Digital India’, ‘Smart cities mission’, ‘Start up India’ and ‘Skill India’ were launched with the intention to improve manufacturing ability of the country, promote innovation and entrepreneurship, create job opportunities, and improve infrastructure and skills.
The report is based on responses from over 300 Indian CFOs comprising from small to large scale companies, with revenues spanning from INR less than 500 crores to more than 2500 crores; and their employee base varying from less than 500 to more than 20,000 employees. The respondents include listed and unlisted companies from both government and private sectors; and Indian companies, MNCs headquartered in India as well as overseas. It also encompassed industries across the sectors.