Crisis2008

The bottom bars - the increase or decrease in the index are on the right axis.

The index seems to be catching up with it's year back value and it seems like most "spikes" happen in March. Last October to December, the index was flat - and started moving rapidly upwards in Jan-March 08. March 2008 was the peak.

If we continue to deflate, we should not see a spike next year, and it's entirely likely that IIP data continues to be negative all through till May next year (which is when data of March will be released).

This time, other than some basic goods and capital goods, everything has seen a decline - both month-on-month and year-on-year. October/November is when Diwali happens, so I would expect some decline due to holidays, and the fact that the drive up would have been earlier. (Can't manufacture in October to sell in October)

Still, while this is bad, I think it's going to get worse on the data front. Even if we stayed flat from we will have negative growth till March at least. the point is - how much worse will it get?

Note: these are tentative numbers, the final numbers are released later. It hasn't been changed in a big way, at least in the recent past, so I believe we'll be at 0.5% or lower.

Meanwhile China is deflating - inflation's down to 2.4% from 4% in October.

This is quite deep in the doo-doo area for China, where people are unlikely to know what to do - most of the working population today has only seen a hugely growing economy, or at worst, a flat one. [Note: This is quite the same in India] A drop in fortunes is perhaps forgivable, but the current situation isn't a drop, it's a vapourization, so to speak.

Exports are down 2.2% - a figure that sounds docile, until you realize the recent past has seen 19% and 26% (in October 2008, and in 2007, respectively). Imports are down 15%. Little wonder then, that raw material exporters are suffering all over the world. It's so dire people are in disbelief, as a statement summarises:

"We've never experienced this before. We don't know what happened,"

he Treasury sold $30 billion of four-week bills at zero percent for the first time since it began selling the securities in 2001 amid persistent demand for the safety of U.S. debt during the worst financial crisis since the Great Depression.

The bills were sold at a high discount rate of zero percent, the Treasury Department said today in Washington. The government received bids for the bills totaling more than four times the amount sold.

...

Yields on government securities have plummeted this year to record lows as investors have gravitated toward their safety as stocks and emerging-market assets plunged. Rates on three-month bills, viewed as a haven in times of turmoil, traded at a negative rate of 0.01 percent today. The Treasury sold $27 billion in three-month bills yesterday at a rate of 0.005 percent, the lowest rate since it starting auctioning the securities in 1929.

India joins the global stimulation exercise.

• Total spending in the next four months, till end March 09, will be 300,000 cr. This is plan and non plan put together.
• Some home loan sops - for 5 lakh and 20 lakh upper limits, which is going to be announced. Someone now needs to find a house that sells for less than 5L.
• IIFCL - a government infrastructure finance company, will raise 10,000 cr. through tax-free bonds, to support a 100,000 cr. investment in highways.
• Export sops: 2% interest concession for exports in "labour-intensive" sectors like textiles, leather and SMEs.
• Ad-valorem cenvat duty cut of 4% across the board.
• SMEs will be able to get 50% guarantee on loans of upto 1 crore (earlier 50 lakhs) under the Credit Guarantee Scheme and the period of such loans has been cut to 18 months (from 24) to encourage lending.
• Import duty on Naptha for power, and export duty on iron ore fines cut to zero. Export of iron ore lumps is now down to 5%.

We'll have to see how it pans out. Definitely positive for iron ore exporters like Sesa Goa, MMTC, NMDC. Positive for small scale textile exporters, which have a good deal with the rupee hitting 50 too. The cenvat duty cut helps literally everyone. Highways sops are good for some of the infra providers, but the PPP model doesn't always work with a lousy stock market. Expect the market to perk up slightly before it goes back to sleep.

The plan, overall, doesn't help much.We might need to do a black-money-disclosure scheme and a huge income tax cut - probably after elections - to get some of that black money back into the market. Plus, dramatically increase enforcement by hiring compliance offers and increasing spending on data mining to find and investigate all tax defaulters.

This is not a stimulus package, really. It's like using a very expensive pencil to poke an elephant. Sure, you're poking, but the animal couldn't be bothered.

Just 1%? I believe a much bigger response is necessary, but then that's what it is for now. Load up on Gilt funds - that's my response. A lot more is going to come; this is very insufficient. Gilt watch: the 2018 g-sec is already trading at a yield of 6.76%. (It may not come down to 6.5%, but if it does, the gilt will see a price rise of nearly 2%)

• SIDBI and NHB to get short term funds - 7000 and 4000 cr. respectively. This is largely to try and lend more to small and medium businesses. (My opinion: Hot air. Not going to do much)
• FCCBs can now be bought back, through I-banks, even without using forex reserves (of a company). Companies can issue ECBs (essentially, non convertible loans) at a 15% discount on the book value of the current FCCB. [I honestly don't understand this point - shall have to find out what it means]
• FCCBs can also be bought back using rupees - but only at a 25% discount (whatever that means) and with a limit of $50 million drawn only from internal accruals (companies can't go get local debt to pay back FCCBs)
• Housing loans for under 20 lakh are now "priority sector". This helps with certain priority sector committments banks have to follow.
• Earlier, commerical real estate loans, if "restructured" classified as NPAs or something close. Now a relief has been given - they're not going to be called "non performing"l; they will be "standard". (Go on, builders, ask your bank to restructure!) This does not apply to your home loan because you are strictly small fry.
• Second restructures - meaning, I tried but I can't even pay back the lowered EMI or principal or interest, so help me again - also needn't become NPAs, they go into "standard" loans.

I still don't know some of the terms ("discount to nominal value of the FCCB") - if someone does, could you help?

This should perk up the markets - nowadays, anything helps. But it doesn't look good in the longer term - deeper, bigger cuts are needed.

Sandeep Jadhav, a 27-year-old professional in India’s outsourcing industry, had only seen the good times. He worked hard as a support technician in the local subsidiary of an American software company and took home an annual salary of about Rs 5 lakh.

He frequently bought expensive sarees for his wife, toys for his eight-month-old son and cricket gear for himself, maxing out on his two credit cards. In December, he planned to take a home loan and buy an apartment in the Kanakapura suburbs of Bangalore. Last week on Tuesday, Jadhav was called in by the vice-president of his company, handed a month’s salary and sacked on the spot.

“I signed the letter, took my cheque and walked out without speaking a single word. It was all over in five minutes,” said Jadhav, reliving the moment. The vice-president told him that he was being terminated due to “bad market conditions”.

...

Despite being pink-slipped, Jadhav himself holds no grudges against his employer of one-and-half years, Dulles, Virigina-based Everest Software, which makes products for small and medium businesses. “If Yahoo, IBM and Microsoft , all big companies with huge cash reserves can lay off, why not smaller companies which lead a month-to-month existence?” asks Jadhav pragmatically.

In the last few weeks, most of his colleagues in the company have been fired, too. “I was one of the last to be shown the door because I was one of the better performers,” he says.

The slowdown in India’s outsourcing industry, the mainstay of Bangalore’s economy, is showing up in unexpected ways. The city’s restaurants and drinking lounges are reporting a 30 to 50 per cent dip in revenues. A publicly-listed real estate firm has slashed prices of apartments. Others have introduced low-end options. Rush-hour commuters are even talking of de-clogging in the roads during peak times as outsourcing workers prefer taking the company bus or riding a two-wheeler to driving their cars.

In the last week, Jadhav has been frantically surfing the internet and scouring the newspapers in search of a job. He has dispatched his resume to a dozen companies unsolicited. He has fired it off to several placement consultants. He has attended three interviews so far but he has had no luck.

Jadhav may not yet have a job offer but he has a plan. “At the next interview, I am going to say to the company, give me a job, don’t give me a salary. Pay me only after I prove myself. I’m ready to go to that level.”

Jadhav’s wife Debadrita quit her job as a content editor at Yahoo when she became pregnant last year. The couple now has an eight-month old son. Jadhav has crossed the overdraft limit on his two credit cards and has run himself into a Rs-70,000 credit card debt. As he describes, “I am quite a spendthrift”. If he does not land a job in the next one month, Jadhav cannot pay his credit card dues and the card company will “come knocking to my door.”

• I was in Bangalore till last January, and have seen most of this - the job hopping every few months, the high salaries, the pushing of the credit card envelope, the living way beyond one's means, and at the time, the getting away with it.

  You might think: who can have sympathy for the likes of Jadhav - the people who spent beyond their means. I am sure he doesn't want sympathy either, because it was a high risk, high return game - he enjoyed the returns when they lasted, and he will ride out the downturn too. The fact that he has a young kid and family and huge credit card debts means nothing - it's his responsibility and of course, eventually, the credit card company's problem.

  Jadhav is not unique, or different. Hundreds like him have stretched themselves to the limit. I know some of them, and all of them are resilient enough to last out a downturn. We needed a recession to get rid of the madness; and what doesn't kill us will make us stronger.

• I left Bangalore in Jan, and one of the reasons was that it had become such a rotten place to live: Traffic was obscene, restaurants were full, roads were smoked out, and people were just too mercenary. A lot of that has changed, and perhaps will continue to change. That city might just get liveable again. Meanwhile, Mumbai has become mean and depressing.
• Last but not least, I knew Everest Software. I worked there for a year, among the early employees, in 1997-98, when it was called ICode, and it was in Electronics City. I still knew people there, despite a lot having changed - even the founders were shunted out by the VCs a few years ago. I even recently interviewed a few folks from there - who told me about the firings - and was pleasantly surprised to see some of the fundas that were created when I was there still existed!