Exchange Rate Fluctuations Biggest Threat Troubling Indian CFOs - American Express/CFO Research

A substantial proportion of senior finance executives based in India identify exposure to volatility in foreign exchange rates as the biggest threat to their company's growth prospects in the coming year, according to the fifth annual American Express/CFO Research Global Business & Spending Monitor, a survey of 541 senior finance executives from the U.S., Europe, Canada, Latin America, Asia and Australia.

"The weakening rupee, high production input prices, a sharp hike in borrowing costs, and geo-political situations leading to fluctuating oil prices and high inflation are some of the factors influencing the confidence level of Indian finance executives," says Manoj Adlakha, VP and Country Head, Global Corporate Payments, American Express India. "However, we see Indian finance executives expressing far higher optimism for growth and with the overriding belief that they will see a quick recovery."

The American Express/CFO Research Global Business & Spending Monitor found that 45% of India-based senior financial executives viewed exchange-rate instability as their biggest threat. Other dangers, such as changing interest rates and increased volatility in capital markets, each drew about 21% of respondents. A smaller yet significant proportion - 12% - chose restricted access to funding and credit as the top threat to company growth.

Compared to their counterparts around the world, the outlook for economic expansion in their country over the next 12 months was brightest in India - 86% - followed by the U.S. (78%), Germany (74%), Mexico (73%), Argentina (70%), Australia (69%), and Canada (67%). In addition, three-quarters of India-based survey respondents have set more aggressive growth targets in 2012 than those they had established in 2011, with 91% of senior finance executives in India saying they are confident about meeting their growth targets.

Growth prospects on domestic sales

Indian finance executives are looking inward for their company's growth, with 60% saying that their growth prospects will depend more on domestic sales than on exports over the next two years. By contrast, the majority of global CFOs, 61%, say they are looking at emerging markets like India, Argentina and Mexico for growth over the next two years.

Unlikely to tap Cash reserves

India-based finance executives differ from their global counterparts in several other ways. For instance, nearly half (47%) of survey respondents in India say that they are not inclined to tap their cash reserves over the next year, compared to 34% of all survey-takers. The highest proportions of Indian executives who do use their cash reserves are very likely to deploy them to fund ongoing operations (41%). A slightly lower percentage, around 35%, say they will very likely use their cash reserves to fund acquisitions (37%) and expand operating activities and headcount (36%).

Natural disasters & geopolitical instability to bring changes

Series of disasters in Japan, Thailand, and elsewhere in the Asia/Pacific region in 2011 has made respondents based in Asia-particularly those working in Japan (68%), India (66%) and Singapore (65 %), to have made changes to their risk-management and hedging practices in 2011. 63 % of respondents in India are also most likely to make changes in their planning processes to prepare for future natural disasters or geopolitical instability.

Travel spending to increase

A majority of Indian respondents (61%) are also likely to increase or spend the same on business travel in 2012, as compared with the past year. More Indian CFOs (63%) expect to increase spending on travel to meet with customers in 2012-likely a reflection of the international profile of many Indian companies' customers.

"Business travel is a key enabler for companies in India and keeping n view the current economic environment, it is important that finance executives closely monitor their cost optimization," says Manoj Adlakha. "Our research suggests that when companies see a positive return on investment from travel, they will continue to spend on it. Today, companies using effective expense management solutions can make significant process and achieve savings, directly impacting their bottom line."

Finance executives worldwide are, however, holding the line on travel spending. A majority of respondents (58%) will spend the same or more compared with last year on business travel over the next twelve months. However, that's down from 2011, when 63% of respondents planned to spend the same or more over the same period of time.

To make the most of their travel budgets, companies will focus their resources on travel that is closely connected with boosting revenue. Almost nine in ten (88%) will spend the same or more on travel to meet with current or prospective customers - with 38% likely to spend more.

Economic recovery

In terms of when the global economy will gain greater strength, nearly half of the world's finance executives (46%) believe that "robust" economic growth will return in their countries by the end of 2012. Indian CFO's are divided in their opinion with 31% expecting the Indian economy to recover sometime after the close of the fourth quarter of 2012, and nearly half expecting a quicker recovery by the close of the second quarter (23%) or third quarter (23%).

Help Wanted

With improving economic conditions, a majority of finance executives worldwide (53%) plan to increase headcount over the next twelve months. Fewer than one in three (30%) plan to reduce jobs.

In India, the hiring picture is slightly more positive compared with other participating countries, with 57% of respondents planning to add jobs and just 11% planning to cut positions.

Both finance executives based in India and all respondents say that their primary motivation for additional hiring is to acquire specialized skills, expertise or experience. More than half of all respondents (52%) cited that as a primary motivation for hiring, as did 44% of Indian finance executives.

Balancing Investments and Profits

Companies in India (49%) are likely to take a conservative approach to spending and investment over the coming year. Similarly, nearly half of all respondents (49%) report that "modest spending and investment to support top-line growth while improving profitability" will characterize their approach to spending and investment. In contrast, only 17% of respondents in India and 14% worldwide say they plan to spend and invest aggressively to boost top-line revenue.

Source : Equity Bulls

Keywords