Seeking new horizons
As we adjust to a lower pedestal, new horizons would emerge.
The quintessential adjustment phase of the economic downturn is
finally catching up. The signs are conspicuous.
Corporate
Companies are selling core assets, acquired in past few years
with great hopes (e.g., GVK Australian Coal, GMR Singapore Power, etc.);
airlines are cutting fares to compete with railways, hotels, automobile
manufactures, realtors are offering humongous discounts to get rid of
inventory; IT companies are delaying calling the new hires; telecom companies
are not jumping over each other to capture airwaves; road projects that were
awarded with exuberant premiums are getting cancelled; sports and entertainment
events are finding it difficult to get sponsors; managements are working
overtime in cutting corners to save margins.
Consumers
Consumers are not crowding the red sales; household budgets have
reconciled to higher energy prices, rail fares, vegetable prices, service tax
on every rupee spent and negative return on savings; savings are settling at
lower level, and credit outstanding is rising as the spend on health and
education takes a hit.
Government
The government has drastically cut budgets for its flagship
Bharat Nirman schemes, MGNREGA etc.; taken many unpopular decisions in a
pre-election year like raising rail fares, LPG and diesel prices, hiking
effective tax rates for corporates struggling with down turn, etc.
Financial institutions
Usually, the financial institutions, especially those in
public sector, bear a substantial part of the cost of adjustment. We have seen
in past 5-6 quarters that the “restructured” assets of PSU banks have risen
significantly. The banks appear to have adjusted to the reality of
“restructuring” and hence are conserving capital (by lending less and
selectively).
New horizons
Historically, the adjustment phase has always resulted in
durable cost efficiencies, higher productivity, smarter consumption patterns,
stricter lending norms, better compliance levels and reformed policy framework.
Material (esp. cement and metal) companies, large banks,
consumer (both durable and staple) companies and IT companies have come out
much leaner and stronger out of this phase.
As suggested earlier we are closely watching Hindalco, Tata
Steel, UltraTech, ICICI, Voltas, Havells, HUL, Dabur, HCL Tech, Tech Mahindra,
and Exide for signs of new rising.
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