Economic Mayhem!! When will the turmoil end?

The Market Mayhem. The much mooted topic these days with everyone. It started with the subprime crisis in US. Went on to the debacle of Wall Street biggies like Lehman Brothers, Bear Sterns .... not to name the smaller ones. Honchos of Banking Industry like Citigroup, Wells Fargo Wachovia etc. were also not spared and had to bear huge losses. Markets collapsed, cos started filing for bankruptcy, real estate prices fell to rock bottom and illness of the worlds largest economy US spread across the world impacting all major economies across the globe. Indian economy few months back was expected to grow above 8% for FY 2008-09. Markets were at an all time high touching 20k mark. Investor wealth rose to all time highs leaving big smiles on the face of incredilbe Indian investors. Money poured in from foreign investors into the Indian markets to reap the benefits of the ongoing growth scenario thus leveraging it too much with foreign money. Just when the analysts started coming out with predictions of the markets touching the 25k dream mark the mayhem hit us hard catching us unawares. The sub prime impact was so hard that foreign investors had to take withdraw their money thus causing the drastic downfall. Rupee from levels of 42 a dollar reached 49 per dollar levels impacting the imports especially oil. Thanks to the Oil slide from $130 per barrel to $60 levels else it is worth envisaging where our balance of payments would have ended up. Indian banks ICICI and SBI which had little exposure to sub prime asset backed securities were also not spared of the hit. This even added to the failure hype of ICICI bank eventually ending up after loads of assurances from the management and even the govt. Current recession is said to be the biggest after the great depression. The much feared job cuts were on a roll and are still sending shivers down the spine of employees of Banks, IBanks and other organizations some of which are struggling to survive and other cutting costs to keep up their profitability levels. If's, but's and what's are the buzzwords in economic conversations these days.

I would hereby like to cite some concerns on certain areas (with focus on the Indian Economy) which are badly hit by the sub prime effect.
1.) The Indian Economic scenario couldnt be left untouched with the ongoing "Great Recession". Analysts predict a decline in growth rates to 7% levels for the year which is still respectable compared to the other big economies of the world. However compared to the envisaged 8.5% level effect of downturn can be very well estimated. Analysts predict the worst is still not over. Amidst a scenario where economies of super powers like Germany, Singapore, Japan along with our very own USA are finding difficult to come out of the crisis growth rate of 7% is a respectable number thanks to the good internal consumption demand facilitating its sustainability in tough times. Governments plan to spend Rs50000 Crore on Infrastructure development is a 'must required' move to enhance growth rate as infrastructure is one area where India lags behind a lot compared to many other developing nations.

2.) With markets touching the 9k mark what should be the advise of Wealth Managers for their clients. Should this be seen as a good buying opportunity for the retail investors as stock prices are on an all time low. Or are the market lows yet to come. Well there are mixed reactions to this question. Of course a long term investment at this time could be advisable short term profit game could be played as markets keep see sawing between 8.5k to 10k levels. However this requires a very very cautious approach on the front of wealth managers and even the investors as risk levels are on an all time high. Wealth Managers who were clever enough to facilitate their clients make profits well on time could cache in this opportunity as a good brand building move for themselves as well as their organization. However extra aggressivenes could have a strong negative impact of loss of wealth.

3.) What would be the Employment scenario across the Indian markets. Good hiring was predicted before the crisis however to what extent will things change is yet to be seen. Fat packages might be a thing of past for B-School grads however we can always hope for the hiring momentum to continue although not at the past pace. Although job cuts are not as massive as in US still the situation is tense enough to create panic situation where employees are just keeping their fingers crossed just waiting for this recession ghost to disappear. This might just add to the pressure of the employees thus impacting the work life balance.

4.) What will be the situation of Real Estate market!!! It started from the US Real Estate and banged the entire world. Real Estate has been attractive option of investment. However it now seems to be in a gone with the wind situation after the sub prime effect. Shares of listed real estate players are on an all time low. Tanking of DLF share price a perfect example of lowering confidence. Tighter liquidity conditions, high inflation levels have added fuel to the fire. Demand has shrunk badly forcing the highly optimistic real estate players to come out with sales promotion schemes which practically were non existent a few months back.

5.) What would be RBI's stand in these tough times. Few months back when Infaltion and Oil prices were on a roll, RBI took a tough stance by raising the CRR to control the inflation which touched 12% levels leaving no option with the consumers to save some extra bugs. Liquidity was tightened to control the credit growth with banks being forced to raise their PLR's and lending rates. With the sub prime wind banging the Indian economy hard the central bank had to change its stance from controlling credit grwoth to facilitating it. Although the CRR was cut by 3.5% liquidity still remained tight on account of the cautious approach adopted by the Banks. Banks had a strong focus few months back on investment products thereby generating huge third party product incomes. The scenario has drastically changed with Banks giving thrust on increasing their liability base so as to enhance liquidity in the system. Interest rates on savings account touched to levels of 11% with some banks thereby offering the customers a safer investment avenue to park their funds in a scenario when market linked investment returns are drastically down.

These were some areas of the jolted world economy which have faced a severe brunt.

It is still not clear to what extent will this mayhem continue. Analysts have a mixed opinion on time span of improvement. Some say worst is yet to come while some predict situation is expected to improve within a few quarters. Just to add guestimates only lead to a brainstorming decision. Govts have geared up and bailout packages worth $800bn is being offered by USA to rescue its top notch financial institutions. US Govt is buying Mortgage backed assets from Financial Institutions to relieve them from the burden of bad debts and make housing credit accessible to public so as to stimulate demand. AIG has got this privelege and Citi has got a $20bn respite. Europeian Union has infused $200bn for the bailouts.

Although these moves have certainly raised the confidence levels of the public and the corporates the current crisis worst after the 1949 economic depression has given a lesson of importance of regulatory norms. Think tanks consider the relaxed regulatory norms one of the primary reasons for making this crisis a massive one.

Despite all this fuss everybody is eagerly waiting for "return of the normal" situation. Positive hopes and rectifications efforts of everybody affected will certainly bring good times and big smiles back across the geographies.

(The endeavour of this article is to highlight and discuss a few facts about the ongoing recession. Views are entirely personal. Comments regarding corrections / additions / deletions are most welcome)