Everyone’s
talking of the slowing down of the Indian
economy. For us, so used to robust growth of
around 8-9 percent, anything less is
hurting. So how badly has the global
financial meltdown really hit us? I am
presenting an overview/summary:
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The sectors least affected (directly) by the slowdown are Pharmaceuticals, Oil & Gas, FMCG, Media & Entertainment
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Those which will feel a moderate impact of the global crises are Power, Automobiles, Retail, Hospitality and Tourism
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The sectors most severely affected are Banks, Financial Services, Real Estate, Infrastructure and Information Technology
Lets take the severely hit industries first.
Banks
Banks have
suffered losses, including some public
sector banks like Punjab National Bank, Bank
of India, State Bank of India and Bank of
Baroda as they had an exposure to the
instruments issued by Lehman and Merrill
Lynch. It wasn’t just the private bank ICICI,
although the latter posted the maximum
losses due to their exposure.
However, if we take the overall the Banking sector in India, there is nothing to worry as heavy regulation coupled with the tendency of banks to be cautious (more than regulations stipulated) has protected the Indian banking industry. Even ICICI can easily handle the loss it has suffered. What it might impact is ICICI’s future plans to expand, but deposits are safe.
Infrastructure
companies:
Ongoing projects may not be affected but
future ones might, by both private companies
and the government. For example in Mumbai
the future phases of the Metro might get
hit. Many such future plans of all cities in
India will get delayed and/or stalled.
Stocks of infrastructure companies will take
a hit.
Information Technology
Strangely it is those top IT companies with
a lot of business abroad and in the US which
are a safer bet because all their eggs are
not in one basket. They also (usually) have
more reserves. However the impact of loss of
business will continue to be felt over the
next one year as business of IT companies
will reduce…financial institutions in
particular will reduce their IT spends.
Consolidation (abroad) of companies and
Integration of their IT processes might mean
more outsourcing (and more business for IT
cos), but there is no guarantee that this
outsourcing will go to Indian IT companies.
The negatives for Indian IT is that two
sectors, Manufacturing and Retail, will
drastically cut their IT costs.
Indian employees on clients’ projects abroad would have to be relocated and/or issued pink slips.
Real Estate
The industry has taken a hit, with builders
begging the government to reduce interest
rates and give them other sops. But the
sluggishness has been good for buyers.
Housing prices have dropped 5 to 20 percent
in all major cities. Retail rentals have
also dropped.
When it comes to a slowdown in the housing market, one of the reasons put forward is that now speculators are wary of entering the market for short-term gains and this has reduced demand. Genuine buyers are more picky and hunt for bargains. Sellers have no choice but to give discounts…and this situation is expected to continue for at least a year.
As to how much further the real estate prices will decrease is a tricky question because even now there are some areas where the prices have hardly fallen at all. Clearly real estate at some prime locations is likely to remain more stable. With builders facing liquidity problems, their expansion plans have been hit and their present projects are being delayed. The minute the oversupply situation is corrected the real estate prices will stabilize. Maybe a year, maybe 18 months. No one really knows for sure.
Other sectors which have had a moderate effect of the economic meltdown
Power
Demand will decrease, but replacement demand
will not be affected.
Automobiles
This sector,
like the real estate sector, was already
facing problems due to increase in interest
rates and the auto sector more so due to
increase in fuel costs, but now the demand
for automobiles has sunk further due to an
overall slowdown in the economy. The auto
companies bottomlines will suffer as their
exports will take a hit, but even then as
compared to other countries Indian Auto
companies will suffer less as their sales
from exports is less.
Overall, exports
are down. And this affects all industries
with any export component, particularly
textiles, jewellery and so on.
Hospitality, travel and
tourism
Not only are
travel budgets of companies being slashed,
tourist flow from foreign countries is set
to reduce. This will continue for at least
6-9 months. Hotels, as they face greater
competition, will see their profitability
affected as they slash rates and give
discounts.
There will be an indirect impact on all industries. For example, FMCG (Fast Moving Consumer Goods) companies will be affected indirectly as consumer spending will reduce. High spenders are believed to be those from the IT sector and this will effect spending, particularly of luxury items.
Source: http://nitawriter.wordpress.com/2008/11/12/sectors-most-affected-by-the-slowdown-in-the-indian-economy/