India Inc May Not Feel The Heat

By Abhishek on 1:22 PM

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Wall Street’s wolf pack has lost its fangs, and the Indian markets are finding it tough to stand apart. That despite strong economic fundamentals and a largely insulated macroeconomic situation.

The answers are quite clear — this is the underbelly of globalization. The Indian economy is feeling the heat of the contagion effect, like never before. And as the global contagion effect spreads like a bush fire to the Indian economy, the question that arises is what’s up ahead for Indian investors and industry?

“We will certainly be influenced by this global slowdown, the pain will be felt with the stock markets reacting in a downturn, but then what do we do? Do we shut or doors on the globe or we go ahead, face the slowdown and emerge out of it,” feels Sanjeev Sanyal, Singapore-based chief economist, Deutsche Bank.

Analysts say there has been a double whammy for India. Direct hit are the ones which had some kind of business linkages with the no longer existing global investment banking giants, such as IT services, real estate and infrastructure.

The major players which are hurt in the IT segment include TCS, Wipro and Satyam. In the real estate sector, Unitech and DLF, among others, have been affected. Analysts agree that all those companies which had these investment banks’ holdings as a significant proportion of their portfolio and business are feeling the squeeze.

Among banks, ICICI Bank is the worst hit private bank, while PSU players Bank of India and Bank of Baroda are affected because of their derivative exposure. FIIs pressed the panic button on India as global agency Fitch downgraded the credit profile to “negative”. However, investors in India have been hit only indirectly, through exposure in the markets. Says Rajeev Shastri, head of alternate businesses of the asset management company Lotus India: “The linkages of Indian investors with these events have been weak as none of these banks are allowed to set up branches in India.”

There is a consensus among asset managers that Indian investors will not be affected very badly. “The Indian markets are certainly over-reacting. The global meltdown has created volatility in the markets but it will not last for long,” says Waqar Naqvi, CEO, Taurus Mutual fund.

However, not all are optimistic. Some analysts feel every large player had invested in some way or the other in India. Lehman had holdings in Satyam, AIG had partnership with Tata’s insurance wing and Merrill Lynch had business with Infosys. Says Anil Advani, head of research, SBICAP Securities, “Nobody is aware of the depth and magnitude of the crisis.

The situation is not transparent as of now.”
Arindam Ghosh, CEO, Mirae, sums it up: “The impact will certainly be felt but not at the portfolio level. The short-term volatility may erupt but the medium and long term perspectives are healthy and safe.

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