India Economic and Financial Confidence Index-September 2008
Executive Summary
• Indian EFCI-Sep 08 reading of 2.22 (on scale of 5, wherein 1 shows most bearish sentiments). The reading is based on Population Mean.
• Responses are characterized by low dispersion and almost follow a symmetrical distribution; implying greater importance of Population Mean and that there isn’t any significant extreme response (thus no significant tail risk)
• Top concerns are Inflation, High Interest Rate, Slowing Economic Growth and Drying Other Income (from stocks, bonds, real estate etc)
• Among broad sub-groups, Economic Growth and Financial Insecurity are top 2 concerns (among 5 sub-groups surveyed)
Summarized Presentation of EFCI
Total Respondents: 135 (Comprised of Investors, Brokers, Financial Analysts, Economists, Corporate Executives including Senior Management, etc.)
Highlights of findings
EFCI for September 2008
• September 2008 EFCI Reading of 2.23 (on a scale of 1 to 5, wherein 1 shows most bearish sentiment and 5 most bullish) shows that respondents are pessimistic about the current Economic and Financial situation of India. A reading below 3 shows pessimism among respondents.
• The data has low dispersion measures like Standard Deviation, Coefficient of Variation, Skewness etc, thus shows greater significance of Population mean, and that responses are in a fairly tight range around the Mean.
• The response distribution almost follows a Symmetrical (near Normal) Distribution. Median of 2.20 is not much deviated from Mean (2.23). Skewness and Excess Kurtosis (i.e. Kurtosis minus 3) measure are of 0.04 and 0.05 respectively. 74% of the responses lie within 1 Standard Deviation from the Mean (as against 68% for Normal Distribution), 93% lie within 2 Standard Deviations (95% for Normal Distribution), and 100% lie within 3 Standard Deviations (99% for Normal Distribution).
• EFCI Reading of 3.5 (indicating marginal bullish sentiments) lies 2.9x Standard Deviations away from the Mean on a Standardize Normal Distribution (standardized by dividing the deviation from Mean by Standard Deviation). It signifies that bullish sentiments lie outside 99.8% confidence interval (in a one-tail test)
Individual Indicators Highlights
• Among the individual indicators, respondents are most pessimistic on the Current level of Inflation (Reading of 1.56) and 95% either Agree or Strongly Agree that Inflation is Worrisome and Alarming (Most of the responses: 52%, ie. Mode, are of Scale 1). Interestingly the response has the least Standard Deviation and fairly low Coefficient of Variation (SD/ Mean), thus there isn’t wide deviation in the response pattern
• Though respondents reasonably believe that Inflation will not rise further, however reading of 2.90 (3 is Can’t Say) shows that they are not very confident on their response.
• Among the individual indicators, respondents are most optimistic of their Next 12 months regular income with a reading of 2.94 (however still not out of bearish territory!). 60% respondents either Disagree or Cant Say that their next 12 months regular income is not secured However, high Standard Deviation shows larger deviation in the response pattern.
Sub Groups Indicator Highlights
• Among the sub-groups, respondents are most pessimistic on Economic Growth wherein the indicator shows reading of 1.92 with low dispersion measure as well.
• Inflation: High Inflation is grossly Worrisome, however response on whether Inflation Will Rise Further is fairly balanced. Also, so far Inflation has not largely affected the Discretionary Purchases.
• Economic Growth: Respondents are of the opinion that Economic Growth would Slowdown in the coming 1-2 quarters and that High Interest Rate would contribute to the said Slowdown. Real Estate & Construction work slowdown is also visible though on a modest scale.
• Financial Security: Higher interest rate is making Loan Repayment very Worrisome and Other Income (from Stocks, Bonds, Real Estate etc) are also drying up. Surprisingly response on next 12 month primary income (salary, professional income etc.) is balanced with higher Standard Deviation (which is understandable, as there are extreme cases of comfort and discomfort-depending on type of industry where respondents are working). However response on this particular question could be biased depending on the kind of target respondents (which in this case is primarily from financial services industry, which currently is not in a very strong shape). Around 40% of the respondents are not sure about 12 month visibility of their primary earning source.
• Different Asset Class Investment: Investors are not so bearish on Fresh Allocation in Equities and Real Estate at the current level. However, they are equally inclined towards investment in safer asset classes like Fixed Deposits and PPFs which in a way rivals Equities and Real Estate as they share the same pie of investment budget.
• Other Factors: Political interference in Business Matter is quite worrisome and that Corporate Income will slow down has drawn fairly consensus response. Respondents are not very sure about Should Sensex’s trade 1yr Forward PE Multiple of 15x in the current market situation.
Other remarks
• Top 5 concerns (among set of questions) are Inflation, Higher Interest rate and its affect on loan repayment, other income (stocks and bonds) slowing down, High interest rate leading to slowdown in economy and expectation that economic growth will slow down in next 1-2 quarters.
• There isn’t any sub-group or individual indicator having average (population) reading of 3 or more (bullish).
• Rise in inflation is of least concern (among the questions raised).
About EFCI
Economic and Financial Confidence Index is an attempt to quantitatively measure current economic and financial situation sentiment. The primary focus of the survey is on the macro picture and hence questions asked are broadly on a macro scale rather than focussing too much on micro segments. Broad areas covered in the survey are: Current Inflation, Likely Future Trend and its Impact; Economic Growth and its likely Future Trajectory; Financial Security and Income; Investment in various Asset Classes; and other factors like Political Interference in Business and Corporate Earnings etc.
While utmost care has been taken to include questions covering broad macro picture to arrive at a meaningful conclusion, any shortcoming will be taken care of in the future. Your feedback, comments, criticisms are invited at vikas.maheshwari@gmail.com
• Indian EFCI-Sep 08 reading of 2.22 (on scale of 5, wherein 1 shows most bearish sentiments). The reading is based on Population Mean.
• Responses are characterized by low dispersion and almost follow a symmetrical distribution; implying greater importance of Population Mean and that there isn’t any significant extreme response (thus no significant tail risk)
• Top concerns are Inflation, High Interest Rate, Slowing Economic Growth and Drying Other Income (from stocks, bonds, real estate etc)
• Among broad sub-groups, Economic Growth and Financial Insecurity are top 2 concerns (among 5 sub-groups surveyed)
Summarized Presentation of EFCI
Total Respondents: 135 (Comprised of Investors, Brokers, Financial Analysts, Economists, Corporate Executives including Senior Management, etc.)
Highlights of findings
EFCI for September 2008
• September 2008 EFCI Reading of 2.23 (on a scale of 1 to 5, wherein 1 shows most bearish sentiment and 5 most bullish) shows that respondents are pessimistic about the current Economic and Financial situation of India. A reading below 3 shows pessimism among respondents.
• The data has low dispersion measures like Standard Deviation, Coefficient of Variation, Skewness etc, thus shows greater significance of Population mean, and that responses are in a fairly tight range around the Mean.
• The response distribution almost follows a Symmetrical (near Normal) Distribution. Median of 2.20 is not much deviated from Mean (2.23). Skewness and Excess Kurtosis (i.e. Kurtosis minus 3) measure are of 0.04 and 0.05 respectively. 74% of the responses lie within 1 Standard Deviation from the Mean (as against 68% for Normal Distribution), 93% lie within 2 Standard Deviations (95% for Normal Distribution), and 100% lie within 3 Standard Deviations (99% for Normal Distribution).
• EFCI Reading of 3.5 (indicating marginal bullish sentiments) lies 2.9x Standard Deviations away from the Mean on a Standardize Normal Distribution (standardized by dividing the deviation from Mean by Standard Deviation). It signifies that bullish sentiments lie outside 99.8% confidence interval (in a one-tail test)
Individual Indicators Highlights
• Among the individual indicators, respondents are most pessimistic on the Current level of Inflation (Reading of 1.56) and 95% either Agree or Strongly Agree that Inflation is Worrisome and Alarming (Most of the responses: 52%, ie. Mode, are of Scale 1). Interestingly the response has the least Standard Deviation and fairly low Coefficient of Variation (SD/ Mean), thus there isn’t wide deviation in the response pattern
• Though respondents reasonably believe that Inflation will not rise further, however reading of 2.90 (3 is Can’t Say) shows that they are not very confident on their response.
• Among the individual indicators, respondents are most optimistic of their Next 12 months regular income with a reading of 2.94 (however still not out of bearish territory!). 60% respondents either Disagree or Cant Say that their next 12 months regular income is not secured However, high Standard Deviation shows larger deviation in the response pattern.
Sub Groups Indicator Highlights
• Among the sub-groups, respondents are most pessimistic on Economic Growth wherein the indicator shows reading of 1.92 with low dispersion measure as well.
• Inflation: High Inflation is grossly Worrisome, however response on whether Inflation Will Rise Further is fairly balanced. Also, so far Inflation has not largely affected the Discretionary Purchases.
• Economic Growth: Respondents are of the opinion that Economic Growth would Slowdown in the coming 1-2 quarters and that High Interest Rate would contribute to the said Slowdown. Real Estate & Construction work slowdown is also visible though on a modest scale.
• Financial Security: Higher interest rate is making Loan Repayment very Worrisome and Other Income (from Stocks, Bonds, Real Estate etc) are also drying up. Surprisingly response on next 12 month primary income (salary, professional income etc.) is balanced with higher Standard Deviation (which is understandable, as there are extreme cases of comfort and discomfort-depending on type of industry where respondents are working). However response on this particular question could be biased depending on the kind of target respondents (which in this case is primarily from financial services industry, which currently is not in a very strong shape). Around 40% of the respondents are not sure about 12 month visibility of their primary earning source.
• Different Asset Class Investment: Investors are not so bearish on Fresh Allocation in Equities and Real Estate at the current level. However, they are equally inclined towards investment in safer asset classes like Fixed Deposits and PPFs which in a way rivals Equities and Real Estate as they share the same pie of investment budget.
• Other Factors: Political interference in Business Matter is quite worrisome and that Corporate Income will slow down has drawn fairly consensus response. Respondents are not very sure about Should Sensex’s trade 1yr Forward PE Multiple of 15x in the current market situation.
Other remarks
• Top 5 concerns (among set of questions) are Inflation, Higher Interest rate and its affect on loan repayment, other income (stocks and bonds) slowing down, High interest rate leading to slowdown in economy and expectation that economic growth will slow down in next 1-2 quarters.
• There isn’t any sub-group or individual indicator having average (population) reading of 3 or more (bullish).
• Rise in inflation is of least concern (among the questions raised).
About EFCI
Economic and Financial Confidence Index is an attempt to quantitatively measure current economic and financial situation sentiment. The primary focus of the survey is on the macro picture and hence questions asked are broadly on a macro scale rather than focussing too much on micro segments. Broad areas covered in the survey are: Current Inflation, Likely Future Trend and its Impact; Economic Growth and its likely Future Trajectory; Financial Security and Income; Investment in various Asset Classes; and other factors like Political Interference in Business and Corporate Earnings etc.
While utmost care has been taken to include questions covering broad macro picture to arrive at a meaningful conclusion, any shortcoming will be taken care of in the future. Your feedback, comments, criticisms are invited at vikas.maheshwari@gmail.com
posted by Vikas Maheshwari, CFA at 10:33 PM
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