I was watching the US market opening report on UTVI last night and the female reporter from NYSE was elaborating the jobless claims in that country reaching 44 thousands plus level, which apparently is the highest since 2003. (We all know that 2003 is the year when the market bottomed out, at least in India with SENSEX around 3,000 mark) The united states is a strong economy where people spend a lot and they spend most of their incomes and borrowings. Therefore unemployment figures do not board well for the largest economy in the world, which not only determine the destiny of investments in that country but elsewhere around the globe.
When we talk about unemployment problem, what went unnoticed is the textile industry in India. In the last one year 3.5 lakh jobs have been lost in this space. There are already reports about negative inflation-adjusted salary hike in the much discussed IT sector where smaller players might loose their skin over the time. You should not have missed the news that Hexaware is trimming down their work force.
Automobile industry in India, which is already struggling to swallow the increased input costs, might face slowdown in demand thanks to RBI's move of hiking interest rate to combat inflation. Governor Y.V.Reddy in his last monitory policy announcement asserted that the idea is bring the inflation down to 7 % by 2009 March from the current level around 12%. Inflation is at 13 year high now. The interest rate was around 17% in 1995, which is exactly that period before 13 years. So, more rate hikes on the cards?
One areas that bestowed unprecedented return, namely real estates, is already facing softening demand and prices. Real estate and construction companies' decline was double that the average decline produced by the market on the bourses. In 2008, around 80 million sq ft (45 million sq ft in 2007) of commercial space supply is expected; indicating that supply is running ahead of demand. With the lending rate going up and the era of easy money is a thing of the past, one does not need to be rocket scientist to predict further decline in property prices across the country. Dalal street investment journal quotes on the current issue: "As for the NAV, a study states that 30 per cent decline in property prices leads to 50 per cent erosion of NAV and hence with property prices softening, NAV of companies with high land bank needs to be revisited.
Needless to say, banking was understandably the worst hit by inflation. Softening credit growth, upward trend in NPA etc can be expected. The, "Sir, would you be interested in any personal loans?" calls you normally get private banks on your mobile might change as, "Sir, we have an attractive fixed deposit scheme offering...". Most of the bank now trade 40-50 down from their 52 week high. They are also affected by treasury losses due to interest rate increment. This was evident in ICICI bank's recently announced quarterly results. The bank's net was dragged down by the treasury loss.
On top of all these we should not forget that our economy is still not detached from the agriculture whose fortune heavily depends on monsoon. With around 60 % of our population still in rural area basing their lives on the oldest vocation on this earth, severe draught for a couple of years can put some brakes on the growth.
Beware, cost of living, cost of health care, cost of politics (price tag for MPs), cost of housing, cost of education and of course the cost of girlfriends are on the rise and they are unlikely to come down.
What lies ahead? Have we shifted from a 'sustained bull run' to a 'sustained bear run' with periodic correction on the upper side? Has the India growth story faded? Are global slowdown and global commodity prices press the India Inc? What lies ahead?
Yes, it is troubled waters. FISH, IF YOU CAN & IF YOU HAVE HAVE THE WILL...
