Business Confidence Index [BCI] Report by YnFx

YarnsandFibers’ has successfully completed the Ninth consecutive quarterly survey on Business Confidence of Indian textile companies in April 2007. The latest survey reveals that Indian textile companies are likely to face pressure on their operating margins in the ensuing quarter of April to June 2007. This is indicated by the dramatic fall in YnFx Margin Expectation Index which combines the perceptions of company’s product pricing and the price it pays to buy raw materials. Crude oil prices are still volatile and are occasionally spiked by geo-political development in Middle East and fluctuating inventories in world largest consumer, the USA. Cotton prices are moving up while competition is keeping textile product prices under seize. The situation has been aggravated by the weakening of the US Dollar globally. The Indian Rupee has appreciated 9% since January 2007, the fastest among major currencies.

The Business Margin Expectation Index for the quarter ended June 2007 stands at 49.5, down from 52.1 of the previous quarter. The index is based on responses to two questions; "In the next 3 months, do you foresee that you will be able to price your products", and "In the next 3 months, do you see that your suppliers’ price you pay will be" with the options: Higher, Lower, or Same as Today.

The Business Confidence Index (a measure of future prospect) for June 2007 quarter was down by 6 percentage points from the March quarter index. This implies that the Indian textile companies are pessimistic on their performance in the coming quarter. The Business Confidence Index for the ensuing quarter stands at 78.3 on the scale of 0 to 100, where the highest is 100, at 50 the confidence is same as today and below 50 implies lower than the current level. In the previous quarter of January to March 2007, the textile industry was a bit nervous. The weakening of the US Dollar was a major cause of concern for textile exporters, particularly the smaller businesses. For the quarter ended March 2007, the Current Status Index stood at 73.9. For the same quarter, the Business Confidence Index (measure of future prospect) was at 84.4.

The Ninth survey has assessed the industry’s feedback on the 2007 Union Budget proposal. About 83% of the respondents are content with the Budget. The Budget has met expectations to some extend but many expected to be still better. However, respondents indicated that they expected Cenvat to be uniformly applied to the entire textile chain and equally on all fibres.

Textile companies in West and North India are less optimistic over their performance in coming quarter. These companies have failed to achieve their targets in the January to March quarter. For the quarter, the Business Confidence Index (indicator of future performance) stood 93.8 and 82.5 respectively. However, the Current Status Index was lower at 84.4 for North and 69.4 for West. For the ensuing quarter (April to June 2007), the Business Confidence Index stands at 81.3 for North and 75.0 for West. South India’s textile companies are expecting better performance in April - June compared to their expectations and actual performance in the preceding quarter. The Business Confidence Index for South India stands at 79.2 as against 75.0 in the preceding quarter. The Current Status Index for January – March 2007 quarter stands at 66.7.

Power supply would be the major cause of concern of textile companies in coming quarter. In order of constraints infrastructure, finance, demand and labour were the next hurdles for growth. Power has been a continuous source of hindrance for textile companies in the past one year. The survey of corresponding period of 2006 had too indicated power and infrastructure as impediments to growth.