Q4 2018 D&B CFO Optimism Index Drops

Q4 2018 optimism among CFOs of Indian companies is at the lowest since Q2, 2014,  shows  the D&B Composite CFO Optimism Index. This is revealed by the Q4 2018 Dun & Bradstreet Optimism Index report released last week.  D&B CFO Composite Optimism Index measures the overall expectation of CFOs of Indian companies on the economic performance.  The D&B CFO Composite Optimism Index represents the expectations and feedbacks of CFOs regarding the financial state of their own company and overall macroeconomic conditions. Q4 2018 represents the period from October to December, 2018. Click to read artcle D&B Composite CFO Optimism Index 

Q4 2018 D&B CFO Optimism Index- Overall performance 

According to D&B report ,the Composite CFO Optimism Index declined by 17.0%,on a y-o-y basis reaching the lowest level since Q2 2014.  During Q4 2018, the index shows a value of 90.2. The composite index was introduced by D&B in Q3 2013. The lowest position recorded since inception was in Q4 2013. 

The two indices based on which the composite index is derived have also revealed the declining trend. The company level optimism index has declined by 17.5% y-o-y registering the lowest position among last 19 quarters. CFO optimism at the macroeconomic level showed a comparatively better position. It declined by 16.3 % only on y-o-y basis.  Optimism levels for financial performance of the company is the lowest since Q2 2014 while optimism levels for macroeconomic scenario is the lowest since Q3 2014

Q4 2018 D&B CFO Optimism Index- Major feedbacks based CFO survey

•    Optimism level in the industrial sector is at lowest in last 20 quarters. 
•    45% of CFOs surveyed expect level of financial risk to increase – Highest in 20 quarters
•    43% of CFOs expect cost of raising funds to increase – Highest in 19 quarters
•    72% of CFOs expect availability of funds in the market to decrease or remain the same – Highest in 27 quarters
•    57% of CFOs in industrial sector expect a decrease or no change in liquidity position of their companies- Highest in 5 quarters
•    40% of CFOs prepares for raising short-term funds – Highest in 18 quarters

Q4 2018 D&B CFO Optimism Index- CFO Optimism on sectoral basis

•    Optimism level of CFOs in the industrial sector is the lowest since Q1 2014.
•    Optimism level in the industrial sector for financial performance of the company is the lowest since Q2 2012
•    Barring Q2 2018, optimism level in the services sector is the lowest since Q2 2014
•    Optimism level of CFOs in the industrial sector for macroeconomic scenario shows a decline of 5.7% (y-o-y), but that in the  services sector declines by 22.9% (y-o-y). 

Q4 2018 D&B CFO Optimism Index -Optimism at the macro level 

•    57% of CFOs indicate domestic macro-economic scenario to be favourable, while 38% believe global macro-economic scenario to be favourable. 
•    Optimism levels for global macro-economic situation is the lowest in 8 quarters
•    Optimism levels of CFOs both in industrial sector and services sector for domestic macro-economic situation is the lowest in 7 quarters  
•    40% of CFOs in the services sector indicates favorable overall scenario for mergers & acquisitions compared to 45%, one year back. 

Q4 2018 D&B CFO Optimism Index- Top priorities of CFOs in next six months

•    42% of CFOs in the services sector – Reducing cost 
•    49% of CFOs in the industrial sector- Cash flow management 
•    Dividend declaration (2%) gets the least priority in both the sectors 

Q4 2018 D&B CFO Optimism Index- Top priorities for risk management

•    The most preferred risk management tool – Effective recovery system
•    The least preferred risk management tool- Tightening credit appraisal mechanisms 
•    Close monitoring of strategic accounts- 34% of CFOs 
•    Hedging as their risk management tool-  37% of CFOs in the industrial sector 

It is expected that the declining trend in optimism level among CFOs is due to the cumulative effect of developments like high oil prices, volatility being faced by Indian rupee, failure of IL&FS in fulfilling commitments and the resultant liquidity crunch and ongoing tussle between the Central Government and RBI on various issues including that on invoking  Section 7 of RBI Act 1935.