Monday, February 16, 2009

Baseline scenario outlook on India

I just came across this site which seem to discuss all the economic situation of today and the Obama stimulus plan. What Obama does affects the world and India is no exception. Here is an excerpt from their outlook on India from a macro-economic perspective. The full link is to article is here. Simon Johnson's interview with Bill Moyers on the stimulus package and bank oligarchy in the US. With the 30:1 leverage we've seen how Lehman and Bear Stearns have helped dig a hole deeper then anyone could imagine.

India

There are striking similarities between the current policy debate in India and in the Eurozone. In both places, there is little or no concern that inflation will rebound any time soon. At least for people based in Delhi, there is as a result confidence that aggressive monetary policy can cushion the blows coming from the global economy. As in the Eurozone, all eyes are on monetary policy because of fears that fiscal policy cannot do much more than it is already doing, given that government debt levels are already on the high side.

The discordant note comes from the business community. They feel that Delhi does not fully understand that the real economy is already in bad shape. Sectors such as real estate and autos are hurting badly. Small businesses, in particular, are bearing the brunt of the blow. The banking picture seems more murky, but is surely not good. And of course the Satyam accounting scandal could not come at a worse time.

Overall, official growth forecasts need to be marked down for India, although the monsoon was good and the agricultural sector is not highly leveraged. India will likely cut interest rates further quite soon (and has space for additional cuts), but we should not expect much more from the fiscal side.

6 comments:

Shailesh said...

Unfinished business: Can Unitech’s Sanjay Chandra put his company back on track?

==
Before the company could make the first moves, the markets went into a tailspin. The plans to raise money had to be shelved. And Unitech ended up with debt of over Rs 8,000 crore on its books. Most of this debt is short-term, while all projects will take six or seven years to complete. There is, therefore, a huge cash-flow mismatch which needs to be addressed.

==
“When the market tanked, none of us had the right products for the housing market,” admits Chandra. As developers like Unitech had focused on the luxury end of the market, where the profit margins were hefty, they had nothing to sell once easy money vanished.
Chandra says that debt worth Rs 1,200 crore will get transferred to his new telecom venture, Unitech Wireless, in which Telenor of Norway has taken 60 per cent. Unitech Wireless will pay Unitech another Rs 900 crore for the investments it has made so far. Thus, it will reduce Unitech’s debt by Rs 2,100 crore.

==
Chandra’s first reaction was to cut the ticket price by as much as 50 per cent. Not only did he drop the rates but also cut floor space. At Nirvana in Gurgaon, for instance, Unitech started selling floors instead of standalone villas at one-third the price. “While we were selling not more than a dozen villas earlier, we sold 300 floors in a month,” says he.

The average cost of land for Unitech, according to Chandra, is just Rs 100 per square feet. In tony Gurgaon too, Chandra says his cost is Rs 120-130 per square feet. “Even if we take the cost of construction at Rs 1,500 per square feet, I can easily drop prices of flats from Rs 3,500 per square feet now,” says he.

So Builders readily admitting the cost for housing should be about Rs. 2000 psft and not Rs 3500.

Shailesh said...

On Satyam accounting scandal,

So, whichever company buys Satyam, what happens to its debt. Does acquiring company also take on the debt, or will govt forgo the debt? If yes, will Banks show these losses or will keep them as NPA forever?

Since Satyam inflated revenue by about $1 billion, I can imagine that most banks are at least upto $500 to $700 million under. My assumption is Satyam, probably borrowed large funds from Banks and diverted it to Maytas to acquire land. Am I wrong?

Anonymous said...

Now IT begins to talk job cuts

Infosys, Nandan Nilekani - "clients are delaying spending, leading to a slowdown in orders. They are not ready to make big investments and are conserving cash. Infosys has a lot of inefficiencies which have been overlooked so far and will be looking to eliminate them."

HCL,Vineet Nayar - "There is no point in repeating that the tunnel is dark. But a majority of the clients are telling us that they are in trouble. 'Caught in the headlights' is the right expression,"

TCS, Ramadorai - "We can't just say we will run the same way we used to.. We can't have a role for an employee where it is not a business role. How long can you keep saying you have a social responsibility (to protect jobs)?"

Consensus
~~~~~~~~~
"They [the customers] are not optimistic in the short term, they are not optimistic in the medium term and they are not optimistic about the long term,"

Remedy
~~~~~~
Trimming of workforce would be done gradually through a performance-based system.

These are the same people who with their planted media reporters were spreading the false information about the growth in IT sectors.

The realty firms, one bad news for you. The Techies who used to be the new entrants in your zombie scheme have been hit hardly and your entire pyramid has started cracking up. No matter whatever tactic is applied to hold the prices up artificially, you will have to bite the dust.

Vik said...

The question is will Unitech deliver a finished quality product, or will buyers be scammed by cost-cutting measures on everything from tiles to landscaping to cement.

Anonymous said...

@Vik...

The company has run out of cash.......it will cut corners to pay the hefty sum back to the undisclosed source of income…it is only the gullible buyers who will suffer and be left to complete the unfinished/shoddy work…

"You only find out who is swimming naked when the tide goes out." - Warren Buffett

Please check following

TOI Article


Unitech promoters pledge shares

NEW DELHI: Real estate developer Unitech declared on Monday that the promoters have pledged 49.48% of their total 64.4% in the company. Promoter holding in the company also fell by at least 3% since the beginning of this year to 64.4%. Other realty players, including Parsvnath, Omaxe, Sobha Developers and Ansal Properties and Infrastructure (API) too have informed NSE that promoters have pledged shares ranging from 13-64% of their company. The latest data available on stock exchange confirms market speculation that promoters of realty firms have pledged a large percentage of their stake to financial institutions. Unitech informed the stock exchange that “a very significant portion of the shares have been pledged as additional security for the loans availed by the company.” Promoters usually pledge shares as collateral for the secured loans from financial institutions as well as for their personal purposes. Unitech did not declare the name of the financial institutions with which the shares were pledged. — Our Bureau

K said...

RE assholes are talking about affordable only in terms their basic cost like 30 lac or 20 lac but if you look at sq. ft rate and other overheads.Its same.

They want central & state govts. to reduce bring down every other thing that impacts the sector but they are not ready to reduce the price.These fools don't understand again same tax paying public is paying for both house and RE package.

In boom time; public will think alike (means no one thinks) and goes ga ga over anything and everyhing. In the tough times also; public will think alike (now really thinks) and will be bearish till it really sees something very obvious.Then kicks off the next bull...till then like vulture says

"So guys let it fall then only pick up minimum 50% price cut is guarantee."