Wats Up India: The hara-kiri down here

The Sensex closed below 10K and has now broken the 9K barrier. 9771.7 yesterday’s close was the lowest close in 2 years. The NIFTY closed below 3k for the first time in 2 years. FIIs have been pulling out funds from the markets and Indian investors are too scared to invest. Mind you most of them had seen a 7 year long bull-run.



The FII’s pulling out money, have increased the demand for the dollar and the dollar is at an all-time high, a tad above Re 50 to a $ at the moment.

Meanwhile, Unitec defaulted on a payment to the government of INR 1500 MM for land dues for its ambitious Noida project. The company is amongst the largest realty players in India. Post this news when KPS Gill (of DLF) was contacted he said that it was difficult to draw on existing lines of credits in a liquidity crunch like this one.

Tata motors, Mahindra and Mahindra Maruti Suzuki and Ashok Leyland are taking huge hits on their ECB’s or forex loans. Tata Motors and Mahindra & Mahindra's forex exposure is seen at $4 billion and $700 Whereas Maruti Suzuki may have forex loans worth $500 million. Ashok Leyland has posted a forex loss of Rs 14 crore in the second quarter.

Tata Motors the commercial vehicle market leader, which commands more than 60% of the market has gone in for a production cut by as much as 40-50% over the last two months or so. Ashok Leyland has also announced similar cuts to the tune of 40 to 50% to reduce its inventory pile-up of 13000 vehicles.

Tata has also announced a cut of 400 non-permanent employees with immediate effect yesterday. The above indicates that the are far more job-cuts waiting in the wings. Furthermore, realty sector players have claimed that we should see job cuts to the tune of 20% in the sector as a whole. Additionally a large number of smaller players and fly-by-night operators who were in for the quick bucks may even be forced to shut shop considering significant correction in property prices. Of course, it was only recent news of the airlines cutting jobs with Jet leading the pack. We are also expecting significant job cuts across the banking and financial services sector and the IT sector.

Coming to property prices we have already seen a correction to the tune of 20% across all segments. Even at the renewed rates there is no activity. The prices are still expected to correct sharply. In my opinion we should see at least a further 25% to 35% correction.

Reliance Industries Ltd (RIL), the country’s largest company by market capitalization, has closed half its polypropylene plant at Jamnagar, Gujarat, because demand for the raw material used for packaging has slowed.

The Airline players have been awarded a bailout package due to the sudden downturn. Whilst Airport BOT players GVK, GMR have decided to approach the government for change in contracts (read: additional benefits) due to the lower traffic volumes at the airport. For the main-street what this means is that there could be significant job cuts waiting in the wings (pun-intended).

Vodofone has approached the government, asking them to post-pone the 3G-spectrum bid to the beginning of 2009. Stating that it would not be possible for players to raise money in times of such tight liquidity.

In spite of RBI’s recent moves to infuse liquidity into the system through CRR and rate cuts. ICICI has just yesterday increased home loan rates by 1%. I have said this before and I say it again, we need higher margins in this country. Tight margins just won’t help you sail through tough times.

It’s festive season here in India (Diwali), supposedly the best time for business in the year. But the regular hustle and bustle at malls and stores, jewelers, car dealerships and banks for loans is simply missing. The glitter seems to have been taking out of the season due to the negative sentiment and the worsening global environment.

The recession has dawned upon us. India is still better coped to deal with it and the long term growth story seems to be in tact owing to economic comparative advantages. There may be a little detour enroute to getting there and we will see tough times till 2010, and hopefully its just till then.

Linkedin Answer: Is New coffee start-up still a good business opportunity

The above question was an open question asked on Linkedin and what I post hereunder is my answer to it. I thought the answer was pretty interesting and it can be a yardstick to measure the strategic performance of almost any business. More so in economically tough times where businesses models are going to be stress tested.

------------
My personal opinion is that it’s going to be a real tough one. The competition in the sector is enormous, as a business you’ll compete with stores like Mocha, CCD, Barista (now Lavazza), Coffee Beans, Costa Coffee and the scores of other local operators. That is however just one aspect. Any place you go these days, be it a mall, an airport, or anywhere you’ll definitely find a coffee shop in some form or the other be it an actual store or a kiosk. The price of entry in most modern markets is to be fast, good and cheap…. Obviously cheap is a relative concept to the kind of perceived value your business provides. Not just that when entering a market where significant competition exists you need to be fast, good, cheap plus have an x-factor. Two questions you would need to ask yourself. Can I be fast, good and cheap, to make a dent in the market you would need to be industry standard at two and a market leader at one. Then you need to ask yourself what is the x-factor I can provide to my customers to induce a switch from their preferred brand. Further questions you may ask yourself: What will be the difference in experience I provide over competition? Do I have a price advantage I can leverage? Is there an un-satiated need of my target audience that I can satiate? Can I have number 1 market share/ Mind share? If you find answers to the above questions and you believe that you could be FGC + provide the x-factor then you have an up and running business model and all that then remains is the execution. I tried to think on the above lines and honestly could not come up with how this could be done in the coffee market in India. I thus believe that it’s going to be a tough ask, never the less it still is possible to make inroads into the market.