Thursday, May 17, 2012

India Reeling Under Slowdown...What is the best thing to do?

"Policy Paralysis" has become a fashion statement now. It has become the Satan's stone, where if something is not going as per planned, blame it on the Govt. policies (Satan). Economic Slow downs may be attributed to intra or international factors. I agree that there is a feeling of gloom lurking around. Combination of High Inflation rate, Rising Interest Rates, Expensive financing leading to cash flow issues. Added to that; Land acquisition problems, Scams of astronomical scale, Bad decisions by Govt agencies, Projects being scrapped, low demand etc. are making industry heads to bite their nails in anticipation of the future prospects.
A Raja Ex-Telecom Minister. Celebrates after getting bail. Accused by CBI for taking bribes to the tune of USD598.5 million
Some news snippets from last 2months:
  • A Group of Ministers (GoM) scrapped the NTPC’s controversial 600 MW Loharinag Pala hydel project on Bhagirathi river in Uttarakhand, citing religious sentiments and environmental concerns as reasons. An amount of Rs 700 crore had already been spent on the project, before its work was suspended
  • The Rajasthan government has scrapped tenders worth Rs 12,000 crore that were bagged by Bharat Heavy Electricals (BHEL) more than a year ago for two separate thermal power projects in the state.
  • In a major setback to Jaypee Associate Limited, the Himachal high Court has directed the company to demolish its thermal power plant in Bagheri village in district Solan and imposed Rs. 100 crore damages for violating the law and making false pleas before the authorities and court.

An indicator of industrial growth is the steel consumption. As per Joint Plant Committee's (JPC) Chief Economist A S Firoz's statement to PTI on 15/04/2012 "I don't expect a very high rate of growth in consumption of steel in the current fiscal. It may be 4-5% for various reasons. However, there are ifs and buts. At the best case, up to 6.5% growth could be expected" and "That (5.5% demand growth) is not a very good scenario. Slowdown is taking place largely because of lack in investment. Industrial projects are not taking off"
Under the administrative control of the steel ministry, JPC tracks data related to country's iron and steel industry.
Heavy Lift and Transport companies are hit the hardest as these companies have low margins and purely depend upon the liquidity and cash flow
So, what should we do? The situation was worse in 2009, we fear if we are staring at another one. Some see this an opportunity. I know of person in the industry who started investing in equipment and acquired a company. When the demand rose,his operating profit margins were higher than others. He knew Law of Equilibrium always takes its course. I agree not a cup of tea for everybody.
This is the best time to bargain. If you have liquidity.

Like Mohammed Ali, keep dodging, preserve your strength, until the opponent gets tired and finally an uppercut! Move like a butterfly...Sting like a bee...


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