*India's Industrial Production Drops Again in February 2009: Far From Reaching a Bottom? *
- *Industrial production* declined 1.2% y/y in February 2009 after falling 0.5% y/y in January 2009, biggest drop in more than 14 years;*Manufacturing * *output *declined 1.4% in February 2009 after decreasing 0.8% y/y in January 2009 and -1%y/y in December 2008 - Despite the fiscal stimulus package by government, industrial manufacturing production has continued to decline due to declining exports and domestic consumption. Measures from government and central banks by cutting tax and interest rate have not been enough to protect the sharp declining in private sector. - *Outlook: *Global and domestic demand and liquidity conditions are unlikely to improve in H2 2009. So, in spite of fiscal stimulus for firms and exporters, rates cuts and easing lending rates, easing of external capital borrowing and FII rules by the central bank, industrial production will continue to be under pressure through most of 2009 and firms will face constraints in accessing capital in domestic and foreign markets - *Global factors: *firms are scaling down production, laying off workers as exports are expected to contract through 2009. Global liquidity crunch and high short-term external rates are affecting external capital raising, FII and FDI inflows that funded real estate, infrastructure, services in recent years - *Domestic factors: *Consumer* *spending is taking a big hit from slower income and job growth, tighter credit conditions. Firms face lower corporate earnings, high leverage and debt/equity ratios, losses on exchange rates on foreign liabilities - *Access to capital *is constrained by domestic banking liquidity crunch, high short-term rates, slump in capital raising activity in the stock market, high cost/credit crunch in foreign borrowings (in 2007, 30% of funding came from foreign borrowing and 16% from stock market). This will also pose risk of bank defaults and rise in NPLs.* *Capex plans will be severely hit (esp. in infrastructure, real estate, and SMEs), several investment plans already under review, new projects being canceled/postponed. With slowing domestic/foreign investment, the investment/GDP ratio will ease in 2009-10 from the present 39% - *Manufacturing* sector slowing since Oct 2008. Industries face slowing sales, rising inventories. Energy (losses of oil companies), real estate (slowing capital inflows, price correction), IT (slowdown in U.S., EU), banking (interest rate hike, losses on credit derivatives, rising NPLs), auto, consumer durables, auto (slowing consumption, income and job growth, tight lending standards), infrastructure (credit crunch, declining net returns), labor-intensive exports (global slowdown) - *Q4 2008: *Profits for top line of 595 companies grew 17% from 35% in Q3 2008. The bottom line saw net profit to fall 21.1% on lower realization for commodities, marked-to-market losses on derivatives exposures and high finance charge - M&A and private equity activity, both domestic and foreign, is under pressure due to global liquidity crunch. M&A volumes fell 23.8% y/y in 2008 led by both outbound and inbound M&A. Cross border acquisitions by Indian companies fell 33.2% y/y. In-bound M&A volumes fell 36.8%. Foreign currency convertible bonds and IPO markets saw lower volumes. Debt raising both from India and overseas fell in 2008 - Industrial outlook will remain as negative until India's exports improve again (Moody's) - two or three months of negative industrial production is expected from May to July 2009 (Macquarie Group) - Industrial output would continue to fall in 2009; firms will suffer lower export demand, and domestic consumption will decline with higher unemployment and softer real wage growth; industrial production growth could contract by 3% in 2009 (EIU) - Many controlling shareholders esp. in real estate have pledged more than half of their stakes to lenders, leaving open the possibility they will fall into the hands of creditors in the coming months. Almost 500 companies have pledged a total of $13.5billion (FT) *Source: RGE Monitor* --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=en -~----------~----~----~----~------~----~------~--~---
