There is an increasing apprehension among Indian corporates that the current global meltdown might snowball into a full-blown crisis and last at least till the end of 2012. This was revealed by a recent FICCI survey where 83 per cent of the respondents shared this view.
The FICCI survey on the global meltdown and its impact on Indian industry shows that uncertain economic outlook has also resulted in Indian corporates (50 per cent of the respondents) holding on to higher cash balances. Within the sample, sectors like metals, cement, food and beverages, reported the maximum increase in cash balances.
An increase in cash balances typically implies that corporates are holding on to their investment plans for better future opportunities, the survey added. Alternatively, when credit is scarce, or expected to be scarce firms hold on to more cash to meet any potential eventualities.
“It is also possible that monetary tightening cycle that started in March 2010 has resulted in sectors like construction beginning to feel the pinch,” said the survey findings.
According to the Chambers, this trend is akin to the year 2003, when the economic outlook was uncertain following the aftermath of the dotcom bust in 2000 and the World Trade Centre attack.
For the purpose of this survey, a questionnaire was circulated among member associations of FICCI and individual companies during September and October. The survey drew responses from different sectors ranging from heavy engineering to textiles, tea manufacturing, cotton and synthetic yarn manufacturing, cement and automobile tyres, manufacturing cables, vaccines, chemicals, pumps and valves.
Apart from conserving cash, a quarter of the respondents have shifted or are contemplating a shift to domestic market to raise funds because of the depreciating rupee and increasing currency risk, according to the survey. Moreover, reflecting the uncertain global environment, coupled with a deteriorating domestic environment, half of the corporates are using incremental funds purely for working capital purposes, the survey pointed out. On an average, the increase in funds for working capital needs has been 25 per cent.
As part of the survey, the participating companies were also asked to indicate what measures need to be taken to deal with the problem of slowdown. Towards this end, respondents made suggested increased government spending to boost the non-food credit growth, an end to the monetary tightening and better infrastructural facilities at the ports, especially in Chennai, Tuticorin and Cochin.