While I was busy testing software for Citibank and HDFC Bank during my technical internship at NCR (Jan to March, 2008), major developments were taking place in 14 trillion dollar economy - The Mighty USA.
The picture shown here is of Lehman Brothers office in Powai. My office was in the same building. I always dreamt of joining Lehman for my management internship next year. Lehman was a dream!!! Dream of not just one person, but of lakhs of MBA students accross India. Dreams rarely realize!!!! Yes, dream cannot be realized now. Lehamn is no more.
What is going on? The average stock market investor in India has lost most of the cash he invested in blue chip companies. He is afraid to buy at such low levels of Nifty and Sensex. Everything was going good, atleast for India. More than 8% growth rate for past several years. Extremely positive outlook of economy. Inflation was under control. Oil prices also Suddenly, things have tunred around. Look at inflation or oil prices now. Everything has changed.
Not only Indian stock markets have crashed. Look at any Asian or European market, they are under lot of stress. Stock markets are barometer of economy or in other words indicators of economic health. The root cause is out now. The subprime mortgage crisis of US is taking its toll world over. But our Indian companies and Finance minister are over optimistic and very confident. Still positive about more than 7 % growth rate, positive outlook for jobs, positive about controlling inflation and shoot at them anything, they will show you only the positive, optimistic side. Are we really safe from this US financial bubble burst? Should we believe the corporate CEOs and Finance minister? Credit Sussie conducted a survey - "Corporate survey: India - in denial?" Surprisingly, 60 % of corporates felt, there is going to be no slowdown. One thing is sure that RBI has adequately regulated the banking system of India - hence our banking system is relatively much safer than american banks. Only IT sector is facing the heat of this financial hurricane. Also real estate companies are facing severe pressure to lower the cost of property and hence less profits. This is not the whole truth. There is going to be a heavy liquidity crunch. Without liquidity, majority of the projects and expansion plans of Indian companies across the spectrum will be affected. While this fact is being acknowledged by the analysts and several companies have already started feeling the heat of this liquidity shortage, others choose to remain confident about our growth story even in the short to middle term.
Indian Financial system was insulated during the East asian economic crisis also of 1997. Till 1997, our growth rate was below 6%. After the crisis, there was a boom during which the bankers lent aggressively and at low costs. This vast liquidity which continued thereafter helped us to grow above 8% (ofcourse there were many other factors, but easy liquidity availability was a major reason - prime reason for me). The end of Wall Street model of Investment banking adds to further liquidity shortage to Indian corporates. Plus several banks have exposure to the bad derivatives, which have become worthless. Famous being ICICI Bank. Government is planning to raise the maximum borrow limit from forign shores, but we must realise that there is global credit crisis - global shortage of liquidity. Plus the demand of consumer goods is going down in US due to job losses, salary cuts ensuring low consumer spending. This fall in sales will directly impact Indian companies who exported several goods like textiles, carpets, etc. Plus IT sector is going to be hit by decline of orders by the financial sector. With Oil prices above 100 $ per barrel, how can we stay confident about our growth. Thus the outlook is not very bright for India. The Finance Minister is knowledgeable enough to understand all this. He is showing positive picture to prevent panic. The corporates also know the real picture, they are denying to sustain their stock prices which may crash on acceptance of cruel hard real facts.
The financial bubble burst will spread like a killer virus all over the world with India being no exception. We need to accept the facts, and be prepared for the worst to come.
But there is always a ray of hope in everything concerned to human beings. The rich middle-east nations are high on cash due to high oil prices. The middle east may emerge as the mecca for cash hunting Indian corporates and companies world over. Plus Indian IT companies are trying to increase the exposure to middle east and make softwares for non-financial sectors too.
I would end it here quoting Winston Churchil
"Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning"
