Background: Early prediction of circulatory compromise in neonates is a cornerstone in improving neonatal outcome. Proper functioning circulatory system is indicated by adequate tissue perfusion. Perfusion index (PI) can identify the state of peripheral tissue perfusion which is a window to the perfusion of the body. Aim of the work: To validate the use of the perfusion index in predicting risk of circulatory compromise in neonates, to help in guidance of accurate, properly timely management. Patients and Methods: This prospective observational study was done on 112 neonates. PI at the day of admission and after 3 days of hospital stay. The hospital course was followed up especially the need for inotropic support, hospital stay and mortality. Results: Patients who used inotropes and passed away had a significantly lower PI than those who didn't in both day 1 and 3. Mean and SD (1.03(±0.57) vs 1.51(± 0.76) p=0.001 respectively for inotropic use in day 1, 1.09 (±0.57) vs. 1.87 (±0.68) p<0.001 for inotropic use in day 3, 0.91(±0.53) vs. 1.48(±0.74) p<0.001 respectively for outcome in day 1. 0.91 (±0.42) vs. 1.82 (±0.69) p<0.001 respectively for outcome in day 3. A significant inverse correlation was found between duration of hospital stay and perfusion index on day 3(r= -0.253, p= 0.007). Conclusion: perfusion index can be used as an early predictor of the need of inotropes, duration of hospital stay and mortality in neonates.