Reverberations from the crisis in the US financial sector are already being felt around the globe including in India. But while things are likely to get tougher in several sectors there is a silver lining as well.
First, the good news: For the fast moving consumer goods (FMCG) industry the impending credit crisis is unlikely to have major impact. Most of the companies are cash rich, such as Hindustan Unilever and ITC, and they can weather the turmoil more comfortably than the minnows. Pharma firms too could remain afloat during the troubled times that lie ahead, a report by consultancy firm KPMG noted. This is because Indian companies are low cost manufacturers of high quality drugs. In a time of crisis this is likely to be an advantage, particularly in the US market. For industries such as insurance telecom media and entertainment the impact is likely or be limited.
A large number of other sectors however might not be so lucky. This includes hotels, software some outsourcing services, real estate infrastructure, construction, banking, stock-broking, mutual funds and to some extent air travel. Hotels mainly those in big cities that cater to business travelers, are largely dependent upon foreign tourists. In India, most foreign tourists are from the UK, followed by the US. Moreover, the October December period is peak travel time and the impact could be higher on hotels because the pace of blow-ups in the US has recently peaked.
The software industry, one of India’s largest export-earners, is almost certain to be affected. The industry earns more than 60% of its revenue from the US and the recent spate of closures and mergers will mean the trimming of various software-related services. Indian companies may not lose out much on revenue from software maintenance business in the US. But the earnings from services such as new application development and implementation of packages (SAP, Oracle etc) is sure to be affected by the slowdown. Indian software companies could be more badly hit than their peers in other countries because they are more dependent on baking, financial services and insurances (BFSI) firms in the US, the segment worst affected by the turmoil.
It could be a mixed bag for the BPO sector. While some BPOs, which were heavily dependent on the BFSI sector, could see their fortunes dwindling, some high end BPOs with substantial cost advantage could see more business coming their way.
The real estate sector, which was booming just a few months ago, could be affected in a major way. Industry players predict that real estate companies could suffer because of high property prices, high interest rates, lower demand from IT-BPO companies and reduced availability of speculative funds because of bad stock market conditions. A slowing real estate sector could also lead to a slowdown in the construction industry. This in turn is likely to affect the cement and steel sectors. The construction industry could also suffer from a slowdown when it comes to new projects.
The US crisis and the resulting slowdown in India is also expected to weaken the Indian rupee. This in turn would mean a higher oil-import bill. With almost no scope to adjust prices, companies selling petroleum products are likely to be hit. Stockbrokers too are expected to suffer as the market slides, volume of trade dwindles and speculators vanish from Dalal Street. Big players and brokers with deep pockets could survive the tough times, but the smaller ones may be forced either to fold up or sell out.