Industry in wait-&-watch mode, hopeful of India’s ability to cope.
Heads of companies across sectors are sanguine that unlike 2008, they are "better prepared" to withstand the impact of the troubled US and European markets. That includes those from the information technology, pharmaceutical and infrastructure industries, more likely to be singed due to their higher exposure to these markets.
Capital markets across the world reacted negatively today, following Friday’s downgrade of the US sovereign rating. Analysts say these developments have heightened the risk perception and uncertainties in a global economy. Managements of Indian IT companies are monitoring, since the US and Europe account for 80-85 per cent of the revenue of most companies.
"We do not see any material impact from the sell-off in global markets. We are watchful but do not see any changes in the business demand environment in North America and Europe. We continue to work closely with our customers to help implement their business plans in a volatile environment," said N Chandrasekaran, managing director (MD) & CEO of Tata Consultancy Services.
The MD of Infosys, S Gopalakrishan, is also in a positive state of mind, despite "fears of another recession in the US and a debt crisis in Europe". "We were able to react very quickly in the past (2008) when the recession happened. These responses are still fresh in our memory and I believe the industry may be able to withstand another global downturn,” he asserted.
T K Kurien, CEO, IT, and executive director of Wipro, also believes "the IT industry is far more prepared for any change in the negative macroeconomic environment now than we were in 2008”. "In fact, the structural weakness in the economy offers opportunities to IT services companies, as we help global corporations’ to variabalise their IT, thus making them fundamentally more adept to compete," he said.
Software body Nasscom stated "although the global economic environment is a cause for concern, it is not likely to impact the IT industry in the near-term future".
‘WAIT & WATCH’
Companies from other sectors also displayed a wait and watch attitude. Consider the case of the Aditya Birla Group. About 60 per cent of its revenues flow from operations abroad.
Ajit Ranade, chief economist of the group, reasoned that "the US downgrade as a standalone event has come as a surprise but the concerns about the US economy from a fiscal or debt situation have been known. Coupled with the euro zone, it's causing uncertainty for everybody. Even in India, high rates, investment slowdown and inflation have emerged as additional factors weighing on corporates. The old debate of coupling versus decoupling is again back in focus," he added.
Infrastructure major Larsen & Toubro, in its outlook today, acknowledged that global economic concerns, spiralling inflation and hardening interest rates are likely to impact growth prospects in the economy. It added that the "Indian economy, however, has withstood such cycles in the past and emerged resilient with its strong fundamentals.
"I think the situation is volatile and there no point in speculating the impact. But since we are not going to raise any money, the impact will be to the extent which interest rates will move up or down and the effect of that. Also, how currencies are going to move. A substantial part of our debt is foreign currency debt and most of it is hedged. The effect, if at all, is likely to be marginal," said Y M Deosthalee, director & CFO, L&T.
Pharmaceutical companies expressed similar sentiments. Glenn Saldanha, MD & CEO of Glenmark Pharmaceuticals, said, "In the long term, the economy will remain with a robust growth, despite such short-term pressure."
S Ramesh, president, finance & planning, Lupin, concurred: "I don't think the economy will be impacted much by the current uncertainty, as interest rates have almost peaked and I expect inflation to fall in the second half (Nov-Dec) of 2011-12. Pharmaceuticals being a non-discretionary spend makes the sector relatively insulated from the current downturns and extreme market volatility that we have been witnessing.”
Iron ore producer and exporter Sesa Goa's managing director, P K Mukherjee, also felt the country "is better equipped to handle the current economic crisis".
He, however, stressed that "the government should bring the reforms back on track".
Industry body Assocham fears the downgrading of US sovereign debt rating "will have cascading effect on markets across the world and could slow foreign direct investments into India".
Says its secretary-general, D S Rawat, “With talk of a double-dip recession in the world’s largest economy, Indian exports are also likely to be impacted. The IT industry, too, will feel the heat as uncertainty and negative sentiments blow across global businesses.” India is the 14th largest creditor to the United States, with an overall exposure estimated at $41 billion (Rs 184,500 crore). However, the industry body added, " India remains a potentially good growth story, with a strong domestic market, driven by 1.2 billion people."
Meanwhile, rating agency Crisil cautioned that the primary impact of the US downgrade would be on the availability and cost of funding, both domestic and international. According to Roopa Kudva, MD & CEO, "the manner in which financial markets and governments react over the next few weeks will determine how the prevailing fragilities in the global sovereign and financial sectors play out".
