INDIA BUSINESS THIS WEEK (Aug 26 - Sept 1, 2012)

INDIA NEWS

Investments may not revive in the near future. Savings by individuals & investments by companies have not been picking up. The relatively high savings rate which prevailed in the country prior to the 2008 crisis supported the investments; the same is faltering thanks to squeeze on margins of corporate; the inflation is driving individuals to other means of investments like Gold & real estate. The RBI cut, in July, the economic growth estimate to 6.5 % (from 7.3%) and raised its inflation forecast to 7 % (from 6.5%). The inflation, according to the central bank, should be around 5%.  Many, however, feel that a cut in the interest rates can give a boost to the economic activity.

The Indian economy posted a 5.5% annual growth during the first quarter of the current fiscal (Q1 FY13), beating the estimates of most analysts (at 5%). After four consecutive quarters of decline, the latest GDP growth rate would indicate a bottoming-out effect with the worst behind. However issues such as slow growth in fixed assets, lower growth (compared to previous two quarters) in top line of companies in the S&P CNX 500 etc. are matters of concern. The real estate and construction sectors have contributed in a significant way to the current quarter’s growth; the growth in the sectors may be attributed to two key reasons- execution of delayed projects & funneling of investment into real estate which is considered a safe investment in times of economic crisis.   The industry & business continue clamoring for fast-tracking reforms, cutting policy rates & implementing second phase of spending; providing impetus for investment & consumption demand.

More Update

CHANGING HUES OF FINANCIAL MARKETS

       The period between 2006 and 2012 can broadly be classified into the following rapid-fire economic cycles

   with corresponding features of financial markets:

    1.       Boom: during the boom period 2006-12, risk capital or equity funding was in demand. Funds were raised

     thro’ Initial Public Offers  (IPOs), follow on public offers (FPOs), Qualified Institutional Placements (QIPs)

     and Private Equity (PE). The enterprise values (EV) were very high

     2.       Recession: post Lehman crisis, the equity markets- both primary and secondary- have lost their euphoria

     from 2009 onwards. As raising funds at high EVs became difficult, debt-funding became more common.

     Concerned over high inflation, RBI raised key interest rates ( 13 times since March 10), putting the

     borrowers into difficulty, leading to Corporate debt restructuring (CDR) in many cases. CDR exercises

     involve reducing the debt burdens of the company by methods such as reduction in interest rates, longer

     repayments, conversion of debt into equity etyc. Creditors are to be convinced about the viability of the

     company with such reduced debt burden

     3.       Stimulus driven : Concessions etc. can improve the viability; turn-arounds can happen with adequate

     concessions, stimuli etc.

     4.       Stagflation

    

    source THE HINDU BUSINESS LINE Aug4,’12