Biz confidence robust despite rise in lending rates

Corporate India's investment plans have remained uninhibited by the rising lending rates by banks and business confidence continues to be robust, according to a survey by Federation of Indian Chambers of Commerce and Industry.

Ficci's Business Confidence Survey continued to show a robust rise in the second quarter of the ongoing financial year 2010-11 as all three confidence indices -- current conditions index, expectations index and overall business confidence index -- saw an increase in their values.

Most of the companies are confident and are expecting to put up a good show in the next two quarters. The survey drew responses from 359 companies across sectors.

About 76 per cent of the firms do not intend to defer their investment plans even as banks have increased lending rates. Companies state that they have several other avenues to raise adequate resources which are more competitive compared to banks.

The good performance of the stock market makes issuance of fresh equity an attractive option for firms to raise funds.

Further, given the large interest rate differential that exists between India and western countries, raising funds through the external commercial borrowings route is another option for firms planning to undertake investments.

Also, as banks have raised their lending rates, companies are raising money through issuance of commercial paper and corporate bonds.

Finally, many mid and large sized Indian firms are in a cash surplus position and they will use these internal reserves for proposed investments.

However, even as companies seem to be a little insulated from the point of view of funding investments, rise in interest rates will impact their

cost of working capital as this is primarily linked to funding from banks.

Most at 70 per cent are optimistic about the prospects of the domestic economy and have brushed aside apprehensions regarding the global economy.

The demand situation in the economy remains comfortable with every three out of four firms expecting sales volume to increase in the coming six months.

The results pertaining to the order book position of firms also confirm the buoyancy seen in domestic demand.

84 percent of the firms said that they expect an improvement in their order book position in the next six months.

This is a substantial improvement, of almost 20 percentage points, from result obtained in the previous survey wherein 64 percent of the companies had reported likewise.

Nearly 50 per cent of the surveyed firms have reported that they would scale up their investments in the coming six months.

However, companies did state two areas of challenge which they will have to face in the coming six months.

The first is the rising cost of raw materials with 80 per cent stating it to be putting pressure on their corporate performance. In the corresponding period last year the figure stood at 50 per cent.

The second issue relates to rise in manpower costs.

In the latest Ficci BCS, we see close to 60 per cent of the firms reporting rise in wage costs and salaries as a factor putting tremendous pressure on the operational costs.