Business Daily from THE HINDU group of publications
Tuesday, Feb 03, 2009
ePaper | Mobile/PDA Version | Audio | Blogs
Business Daily from THE HINDU group of publications Tuesday, Feb 03, 2009 ePaper | Mobile/PDA Version | Audio | Blogs |
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Opinion
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Editorial The froth drains What the corporate sector is witnessing, after years of exceptional growth in sales and profits, is an inevitable period of consolidation. The corporate results for the third quarter of 2008-09 only confirm what has been suspected for quite some time: a moderate growth in sales volume and a huge squeeze in profit margins. One need hardly be surprised by the dramatic decline in fortunes of select sectors such as metals, automobiles and real estate. The dip in performance is a case of excessive froth that accumulated over the years getting drained out of the system. On a broader plane however, it seems clear th at what the corporate sector is witnessing, after years of exceptional growth in sales and profits, is an inevitable period of consolidation. For some it could be a case of mere belt tightening; for many others it could be an extended period of painful readjustment to new straitened circumstances. The last four to five years had seen exceptional growth in stock market valuation as an ever increasing number of foreign institutional investors bought into the Indian ‘growth’ story. Indian companies found that they could raise money quite easily, both within and abroad, which triggered a wave of investment in fresh capacity creation and in a few cases, big-ticket global acquisitions as well. The boom in commodities prices driven partially by Chinese demand ahead of the Olympics and speculative money that leveraged high liquidity in the global economy in search of quick profits didn’t hurt either. Indian corporates, after all, were primarily into the manufacture of low-end basic goods such as metals, plastics and essential chemicals and so on. Subsequent events have shown that the burgeoning US demand, on which the rest of the world and most certainly, the emerging markets such as India and China, had built their growth dreams, is a mirage. As credit became scarce, portfolio investments in emerging markets began to be unwound. Together with the shrinkage in the US output, this dealt a mighty blow to Indian aspirations of double digit growth. The time for decisive administrative action has come. For long, Indian policy makers could bask in the warm glow of robust growth of the Indian economy without having to do anything to remove the structural rigidities in the system. They were riding piggyback on the success of Corporate India that was part hard work and part good fortune. The good fortune has disappeared. One can, no doubt, count on the Indian corporates to do what it takes to overcome the new challenges. It is up to the new Government that will assume office in a few months from now to take its mandate of governance seriously and unshackle the economy from the constraints of poor and often slow decision-making. Profits shrink for first 550 cos Industrial production grows 2.4% in Nov Corporate profits could be lower in Q3: Study More Stories on : Editorial | Corporate | Economy
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