Thursday, March 14, 2013

Seeking new horizons


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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