India CFOs worried more about inflation than European crisis

Chief financial officers (CFOs) of Indian firms are more concerned about factors weighing on domestic growth such as high oil prices and inflation than about the European debt crisis or slower growth in China, according to an inaugural survey of CFOs in the country by Bank of America-Merrill Lynch (BofA-ML).

One hundred CFOs of both public and private sector Indian companies with annual revenue of $500 million (around Rs2,455 crore) or more were interviewed on prospects for their businesses as part of the survey. They rated various aspects of growth, on a scale of 1 to 10, between October and December. The report, CFO Outlook for Asia, released on Tuesday in Mumbai, is the first such compiled in Asia by BofA-ML. Its US CFO Outlook report is now in its 14th year.

A weakening rupee and persistently high inflation were the top concerns for Indian CFOs when the survey was done. The rupee dropped more than 17% between August and December 2011 and wholesale price inflation remained close to 10% despite a series of interest rate increases by the Reserve Bank of India. The local currency has gained more than 8% since January as foreign funds poured at least $8 billion into Indian equities and debt. This has propped up equity indices. Wholesale inflation eased to a 26-month low of 6.55% in January.

“This survey was done some weeks back and the macroeconomic situation has changed for the better in the last six weeks; so there may be some points which may not be relevant,” said Asit Bhatia, head of client coverage, global corporate and investment banking, India, at BofA-ML.

Overall, 465 CFOs were interviewed across Asia and 22% were from India.

One hundred and eighty of the 500 firms on the BSE-500 index had revenue of at least $500 million each in March 2011. These firms control 93% of the exchange’s market capitalization.

BofA-ML has not revealed how many BSE-500 firms participated in the survey.

“Indian CFOs were moderately optimistic about the current state of their domestic economy registering a positive score of 6.1 out of 10...behind the most positive countries Australia and China, which registered 6.6 and 7.5, respectively,” the survey said.

Most of the CFOs are more confident of their local economies as against the global economy. “They ranked the current state of the region’s economy 6.5 out of 10, while the rating for the global economy was substantially lower at 4.7,” it said.

Indian CFOs are the most optimistic about an increase in revenues, with 77% expecting higher revenues in 2012, much higher than the 58% of CFOs expecting an increase across Asia.

“CFOs must be expecting an increase in revenues because growth in India, even at 6.5% for 2011-12, is higher than everyone else, except China. These revenues will come from economic growth,” said Indranil Sengupta, India economist at BofA-ML.

The US lender expects India to grow at 6.8% in 2012-13.

joel.r@livemint.com