Green shoots? I wonder…

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August 26th, 2009 Joydeep Ghosh

While the sharp upward movement in the stock markets would indicate that the worst is over, the numbers are not too convincing.
Analysts are clear in their view that better corporate numbers worldwide are more a function of reduced costs, rather than better performance.
As far as India goes, already drought has hit the country pretty badly. Consequently, agricultural production and gross domestic product will be hit. This means higher food prices, higher inflation, and ultimately, higher interest rates.
Worse still, a bad season means reduced purchasing power of rural India. Though the Finance Minister Pranab Mukherjee has expanded the scope of NREGA, it will at best ensure that the poor do not die because of lack of food.
So the lack of demand will continue to hit companies, which are dependent on rural India, to generate revenues.
In other words, salaries are not going to improve in a hurry cramping the working middle or upper middle class’s ability to make big buying decisions.
While builders are aggressively building and touting ‘affordable’ homes, the definition of affordability has changed – a flat costing Rs 25-40 lakh flat may sound affordable to many, especially after the heady days of Rs 1 crore flats even at the suburbs (well, it’s still like that in many places).
But going by a simple thumb rule, here are some interesting numbers. To get a loan of say Rs 30 lakh for 20 years, a person needs to have take-home salary of around Rs 60,000 – 80,000 per month – a gross salary of Rs 7-10 lakh.
I wonder how many people would be willing to risk this unless the deal is really good.
Also, while the job market is improving, it’s still not a free-for-all (no hiring to just have the numbers). Importantly, salary hikes are much more conservative, if at all. Buying a car or a second car will also be a tough decision.
Signals from the world economy are not great either. The US, in spite of some decent numbers, does not seem to be out of the woods. And China’s growth, many feel, is a bubble.
Not quite a bright picture. Of course, markets might turn around much before that. But it will be more liquidity driven and less due to economic fundamentals.

To me, it will be a while (perhaps more than a while) before things really turnaround. Till then, well, life goes on.

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2 Responses to “Green shoots? I wonder…”

  1. Hitesh_Shah Says:

    I agree with Arun. There’s nothing that hasn’t been said by others.

  2. Arun Srivastav Says:

    Dear Joy Deep,

    First of all a suggestion - name your column or blog as Joyride!!

    Your opinion is commonplace — being peddled out by every other business journalist — and has no merit, no insight but only Bakwas. Stock market is booming in India. And, BS has no clue why it is behaving so. Nobody will tell you why if you don’t know it already. But don’t mistake; don’t mislead!
    Drought yes, it is looming over us now. But that’s because agriculture is on the peripherry of economic planning — whether it’s a business newspaper or an IAS at Shashtri Bhawan. Perhaps till oneday, when Mukesh Ambani, Sunil Mittal buy out all agriculutral land in the country. It will be a proud moemnt in all business newspapers’ offices. India settles Bharat for $…!
    Using the word Greenshoot in view of such commonplace analysis is over-ambitious!
    Best regards


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