CURSE OF FINANCIAL INTEGRATION

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However, the so called ‘short-term’ impact is also looking quite heavy on the Indian market as after an unexpected slide on September 24, before the expiry of derivative contracts on September 25, Indian share market turned out to be the second worst performer in Asia. Still, analysts are arguing that the market will not be impacted highly as Indian firms do not have meaningful exposures to sub prime assets. Interesting! Perhaps they are looking deep into various sectors. Analyse the real estate or the banking sector and you will get to know it immediately. True, they are not exposed to sub-prime assets in a direct manner but they are definitely closely related to the companies who are biting dust under the ongoing crisis.

Sudip Bandyopadhyay, Director & CEO, Reliance Money avers, “The real estate sector will be hit badly since American investment banks in trouble had made commitments for investment to many private players in this sector. And now it doesn’t seem to materialise given the present state.” In banking too the situation is no different as banks like ICICI Bank ($80 million), Bank of India ($30 million including $20 million in a Lehman Brothers subsidiary) and Bank of Baroda ($10 million) had some major investment in Lehman Brothers. Now Lehman Brothers’ bankruptcy would put some pressure on these banks in terms of additional reserves.

Also the demand slowdown from US financial services companies will dent the top line growth of Indian IT companies. As per Bandyopadhyay, “Few IT and BPO/ KPO companies would get temporarily affected since a significant part of their income is from BFSI segment in US.” As another aftereffect we might see is, this credit crunch might put pressure on the big ticket acquisitions. With global meltdown in equity markets, risk appetite would see a huge contraction and there might be a period of lull in the Indian companies’ global acquisition spree.

With three of India’s sunrise sectors feeling the heat on collapse of Wall Street giants analysts who are still confident that Indian market is insulated enough to escape with little dent may soon need to chew their words. And if that happens investors will have to wait for a longer period before they feel after hearing ‘Good evening.’

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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