The Cocky Indian.

There has been a smart recovery in overall business confidence in the current round of the survey. However, this optimism is not reflected at the company level. There has only been a moderate increase in the proportion of companies which expect better profits, higher domestic sales and a matching rise in their production compared to the previous round. This implies that business sentiment has improved from the lows touched during the April-June ’07 quarter, but companies are still cautious and are modest about future projections. They seem to be mainly concerned about the future direction of the economy and its impact on demand.

A resilient investment demand and inelastic consumption demand for essentials goods and food may be responsible for this optimism. On the other hand, optimism among companies belonging to consumer durables and services sectors has shrunk in the latest round. In short, the gain in confidence at the macro level may take time to trickle down to individual companies, which are still reeling under the effect of a tight monetary policy and an appreciating rupee. In the near term, we may have to stay with a deceleration in industrial production. However, the silver line is that companies’ financial position may continue to remain strong with rising corporate profitability. This will enable them to comfortably absorb an economic slowdown, if it takes place.