As with any debate, I found a small but vociferous group of experts who were trying to grab world's attention by putting out figures which pointed to a speedier growth in Asian countries. By then I was convinced that Asia is where the economic crown would finally land up after recession. Until I found a stastic which blew my mind away. Size of US economy was 14T, and the close next was china with only 4T. There was no way a recovery possible without US recovering, I was convinced. I shared these findings with Harsh Singh Lohit, our MD for a wider perspective and he seemed to agree. He also put forward another point which convinced me that to wrest the initiative from US was impossible, for now. He said that the US culture is so innovation oriented that it "encourages to fail". That is how the US has managed to reach that position and even today most of the technical companies have their roots in US.
Here are the facts -
Further, a survey conducted by the Duke University on the cash levels of financially constrained and unconstrained non-financial firms, their credit availability and their investment plans for the future, shows that Asian firms are much better placed than their Western counterparts. This suggests that economic growth will be both relatively and absolutely better in Asia. -- http://www.livemint.com/2009/02/02211754/Time-to-bet-on-decoupling.html?h=B
Investors were encouraged by reports new bank loans in January exceeded 1.2 trillion yuan ($175 billion). State media said the top four commercial lenders have already made 20 percent of their planned loans for the year. Steel producers gained after BHP Billiton Ltd., the world's third-largest producer of iron ore, said customers are returning to the market. -- http://sg.news.yahoo.com/ap/20090204/tbs-as-china-markets-618743b.html
Indian IIP numbers increased to 2.4% as compared to 0.4%contraction in october. Tata Motors and M&M say that better automobile sales were noticed in January.
I was convinced that no recovery was possible until US recovered. But there were sure signs that the recovery will be led by Asian tigers. What made me feel this way first of all was an increase in the number of job openings in my mail box. I was amazed that when everyone was talking about doom and gloom, why at all were companies hiring?
I reached a conclusion, that between the lines of catastrophe there was a hope for optimistic times. Since the talented people were available at throw away prices in this economy, a lot of companies were preparing themselves for the offensive. In december there were job openings but by a small group of regulars like IBM, Accenture, TCS, Infosys. By the time january hit, some of the smaller companies had joined the fray like CSC, Rolta, Amdocs, etc. I then predicted that people will stop losing jobs by the the end of 1st Quarter 2009 in India. By 2nd quarter of 2009, the stock market will stabilize and will look to move up.
The acid test has come and I am proud that i have passed with flying colors. The feb data is out and it is nothing short of encouraging.
- The auto sales have shot up consistently from December to February '09 and this time around there was a double digit jump from the figures of Feb '08. But it is being said that feb '08 was a lean time as people were waiting for duty cuts. Lets see what happens in March '09. I am keeping my fingers crossed
- The steel sales have taken a U-turn too in Feb'09 , because car manufacturers have decided to ramp up inventories because of the excise duty cuts of the government.
- RBI has reported that credit off take has increased by 10000k crores in january. While the same was rising by 1500Cr by november and december.
- Gartner reports that first time offshoring clients inquiries increased to 30% in last quarter as compared to 20% before that - http://www.livemint.com/2009/03/03132342/US-firms-eye-more-offshoring.html
There is another theory why this downtrend can never be as long as the great depression was even if the figures suggest so. If a look is taken at the stock markets history, the recessions, slow downs actually take less time to rebound as compared to slowdowns of similar magnitudes in the history. I don't have data for this, but I will update on this with data pretty soon.
Now lets wait for another month and wait for March figures.
More figures -12th March- India IIP numbers reported at -0।5% for January. It was -0.6% for December. Inflation continues to yield. US lost less number of jobs in January than in December.
Update 1st April: There are some good news and some bad news here. First the good -the article here states that 2 wheeler sales have improved both MoM and YoY. So thats definitely a sign of improving times.
A bad news was that GM and Chrysler may have to alter their ways and may be even close down. TCS and wipro have huge contracts from these for which payments are being delayed. These contracts may not be renewed. If this happens then definitely there will be more job cuts in India, setting back the clock on receovery. I have been insisting for quite a while now but IT companies will have to get over with their obsession about North America and Europe. The times demand that they align themselves with businesses and regions which will come out of the recession faster. HCL has already started doing that with deals with Reader's Digest and National Insurance. I think HCL will come out as a much more sound and stronger company after the downturn.
Update - 2/04/09 - Also came to know that cars sale increased MoM by 2%. It was also
mentioned that the continual increase in number of cars and 2-wheelers sold show that this
is a trend and the conditions are beginning to get better. There was another bad news which
stated that exports fell so much that BoP became negative. Thus, it can be inferred that India
in isolation is doing better than most of the world. Since exports show recovery in Europe and NA, it is certain they will take more time to come out of the mess. Thus all businesses should for now focus on India, china and brazil which are expected to become islands of recovery.
Update - 9/04/09 - The stock markets seem ready to shoot through the roof. Some facts
- MFs were sitting on cash reserves of 20000 crores
- After March insurance sector had a corpse of 45000 crores.
- FIIs have started to come back with fresh money. All the developing markets have done pretty well and India has done the best.
- As predicted earlier, election is proving to be a money spinner with the country spending close to 15000 crore including the parties and EC funds.
- Bonus - Nano booking started so people will start taking loans and start getting money out of their pockets for the car!
I was hoping this to the case from late May but it has overshot my imagination and vision. Good for the economy though. Now another prediction was that IT industry in India will stop cutting down on jobs from March end. I haven't hit the home run here as well as there are news of proxy lay offs but definitely the trend is waning. There cannot be any news for no layoffs but the only hope is absence of any news.
Updates 16/06/2009- It has been a long long time since I started this thread in the hope of being able to check my understanding of the world with how things pan out this recession. Since this is a period of flux, things change very very fast and I have remained stuck with my work. Work, neck deep, just alive. It killed all my extra-curricular activities. Hope I won't see such days in future.
The updates... well I was close but slipped on fundamentals. The Economy started rebounding from May-June, my prediction was March. I did not know this rule of the world - Markets lead the recovery by a quarter and job scene lags the economic recovery by a quarter and sometimes even 2. As a result, markets started their journey upwards right after March. Indian IIP numbers started coming in strong from March. The stimuls package of the government, elections where about Rs15000 Crores were spent. And a very pleasant bounty of a stable government really improved the economic outlook and expectations. ABN AMRO managers index also went over 50 during this same time. The steel, capital goods, fertilizers saw good rise. FII money started coming into the markets. As a result, the markets started their flight upwards. There was also a news where diamond industry was recovering when it took a couple thousands laid off workers back. Automobiles registered awesome growth. On the back of nano, the pent up money supply with middle class found its vent. This also opened the blocked credit channels. Tata motors got bookings worth Rs2000 crores. 6th Pay commission was implemented which also helped lift the sagging demand. So a lot of luck and a lot of effort did help economy get on to its feet. The GDP growth came in at 6.7% much better than anticipated 5.8%.
With markets rising after March and economy coming on track since early May-June, the job scene recovery should start by September-October. But this recovery is bound to be restricted to sectors dependant on Asian and domestic demand e.g. Steel, infrastructure, fertilizers, telecom, automobiles, in other words primary and secondary sectors. Tertiary sectors like Investment Banking, IT/ITES, import-export, other outsourcing will only have to wait until US and Europe recovers which could take another year.
There is some sense of satisfaction as the IT industry is going the way I did think it would. Most outsourcing companies are looking at alternative sector and geogrpahies to thrive. HCL has got a lot of contracts of domiestic firms like National insurance etc. They also bagged Reader's digest contract. Infosys is also looking at increasing desi footprints by targetting the desi banks like SBI. In today's news, IBM is looking forward to deals in India. TCS got a BPO deal for passport office. Since we live in India, we come to know only about Indian news, I am sure they are doing the same elsewhere. Also, it is noteworthy that Infosys is a late entrant into desi scene, which might just dent its invincible image. Time will tell, but I think Infosys will lose its position just a little bit because they have not really changed their focus that drastically as is needed. Another point to be noted here is that smaller companies will give away some of their turf to the biggies. There is a reason to it. When the IT market was expanding, most companies were able to secure projects because the biggies did not want to touch the smaller deals, similarly, the mid-size did not want to touch anything that was smaller than mid-size projects and so on. There was enough for everyone. But as things started becoming tighter, the lines did not stay sanctimonius. Biggies started getting into turfs of mid-size companies and mid-size to smaller and so on. As a result there was a closure of about 200 outsourcing companies both in BPO and IT space in Banglore. And similarly, headstrong also gave way to biggies into its turf and probably made way into share of smaller companies. They have also not been the most agile and flexible in terms of their response to the recession. Different circumstances need different strategies. When draught hits, its better to not fight for easy water with lions but to venture into difficult terrain. I can only say that, it would be my guess because I have never really been in a leadership position. But I know I am close.
I noticed that in this recession, the knee jerk response has been to chuck off the sales people first because they are not able to meet their targets or because the opportunities are so less in the market that so many people may not be needed to sell. Now at first this reaction seems very logical and pertinient but a little more attention to detail reveal that if the number of needles in a hay stack were n before recession and they have become n/2 now, the probability of success of each person has reduced to 1/2. Now to get the same number of deals, double the number of sales people are required. Thus, any reduction will only cause a lot more loss in the business. Its similar to the story of 2 salesman on an island where people did not wear any shoes. One of them told his office that noone wears shoes here, forget it. The other said that noone wears shoes here, get in tons!
Hopefully I will be in here more regularly from now on.
