Economic slowdown affects stakeholders differently...
The Indian economy has been slowing down for sometime and now with the 3rd quarter GDP growth rate for the financial year 2008-09 standing at 5.3 per cent, the fact gets further concluded. Well, one doesn’t even need to look at the Central Statistical Organisation (CSO) results to feel the pinch of the slowdown. Forget about having any positive growth rate on a year on year basis, given the manner in which almost all the sectors are finding it difficult to maintain their respective top-lines of the previous year. Till about six months back, the sectors like real estate, IT, core sectors like steel and cement as well as the investors’ darlings like the Pharma sector were wielding enormous clout within the investor community. Suddenly, the fairy-tale was over.
It just took one shakeout in the US economy to burst the speculative bubble that was building around most of the sectors, specifically real estate. In spite of the fact that for a country as big as India where there’s still an incredible amount of latent demand waiting to be tapped, it’s unfortunate that simply because some sectors in India that were heavily dependent on foreign investment or foreign demand are seeing a downturn, the sentiments have turned so much against that some of the other sectors which have been and would have continued to do well are also suffering. So while the IT and the Pharma sector were dependent on the demand from especially the US market, the real estate sector was simply catering to the speculators demand, which was fuelled by NRI money or that of the High Net Worth Individuals (HNI). As such India’s real estate sector was never willing to cater to the housing demands of the common Indian and things got worse as more and more investments started pouring in, making real estate acquisition almost out of bound for the end user. And interestingly not just private investors but most of the Indian Banks' exposure (both Public Sector Units and private) in such sectors have been exponentially high. The real estate exposure of Indian banks as per RBI data for the financial year 2007-08 has been an incredible Rs 5,99,670 crore.
Now that real estate has been hit by the ongoing slow down and there exists an impending fear that the sector is yet to bottom out, most of the banks as well as the private investors and financial institutions have been continuing to pump in more money. Even for those cases who stand to be highly leveraged. One prime reason for this is that if banks stop lending the much needed working capital, then the companies would completely sink and along with them would sink all the previous lending that have been done for years now. As a result of this most nonperforming companies in the most risky sectors are in the most privileged environment. And the ones who hold a promise to perform are facing the brunt, for not just investments have dried up, but also investors have become over cautious with respect to their investments. A case in point is healthcare: availability of affordable health care is still a major problem in this country and yet the exposure of banks in this sector is still nowhere near the exposure the banks have in real estate sector. The same holds true for lot many other sectors as well.
All in all, economic slowdown undoubtedly affects every stakeholder of an economy, differently. But unfortunately, the ones who are instrumental in creating such slowdowns are the ones who remain the most pampered, even in the worst of times. For them in certain measures, it's still the best of times!!