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Oil prices, inflation, slowdown threats to Indian economy

According to '2012 CFO Outlook Asia', a survey of chief financial officers launched by Bank of America Merrill Lynch, the oil price increase, rising inflation, economic slowdown and credit availability are great threats to the country's economy.

The report said CFOs in India were moderately optimistic about the current state of the domestic economy, registering a positive score of 6.1 out of 10.

Mr Asit Bhatia told reporters that although India CFOs are not the most concerned about global macro issues such as the European debt crisis and the state of the US economy, these issues contribute to uncertainty in this part of the world and India is not immune to global forces, Bank of America Global Corporate & Investment Banking Group Head of Client Coverage.

He said that "The Asian region continues to experience strong economic fundamentals and remains a relatively bright spot within the global economy.” He added that the domestic equity market is expected to remain volatile, though it has shown some positive trend in the last few weeks.

The report said that reflecting the country's focus on the domestic economy, Indian CFOs were less concerned about the global economic factors which were deemed the greatest threat to economic growth by the CFO group as whole, namely the European debt crisis, the US budget deficit and the prospect of an economic slowdown in China.

The report said that CFOs in Asia, excluding those in Japan, are positive about the regional economy but cautious on their view of the world economy. They ranked the current state of the region's economy 6.5 out of 10 while their rating for the global economy was substantially lower at 4.7.

For all the worries about the macroeconomic picture, the majority of CFOs in Asia (58%) still forecasted revenue to increase at their companies in 2012, with Indian CFOs leading the way at 77%. More than half (52%) expected higher profits, led by those in India (68 percent), Australia (60%) and Singapore (54%).

It said that a large number of India CFOs forecasted revenue rather than profit growth may suggest that companies are concentrating on gaining market share in the year ahead, with the bottom line representing less of a priority.

Where finance is concerned, CFOs in India are in line with the Asian average with 37 percent expecting their borrowing needs to increase in 2012.

India CFOs are the most likely to require financing for both domestic and international expansion as well as for capital expenditure and are also the second most likely to require financing for working capital and acquisitions.

The report said that the focus is now on domestic acquisitions. Over 50 percent of CFOs considering M&A in 2012 were looking to do so in their home market. The most cited reason for planned M&A is to ensure growth, and consolidation.

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