Tuesday, October 14, 2008

What Sectors get affected in a Financial Downturn?

1. BPO/ Outsourced services:
The Indian BPO industry is heavily leveraged on the US Banking sector. Some of them even focus exclusively on investment banks. With the banks down and some of them even out, the BPO segment is right on top of the list of industry segments affected. Diversified BPO's and those with no exposure to banks - if there are any - may not feel the pinch as horribly. With credit card defaults expected to balloon, the worse is not yet over for this industry.

2. Software export:
Just behind BPO in their exposure to US banks in particular and the US economy in general is the Indian software export industry. While the top five may get way with some reshuffling and reorientation, it is those lower down the value / brand value chain that will feel the real pinch.

3. Private Banks:
I really hope that no Indian bank shares the fate of the already fallen. But in terms of sheer market valuation, private banks have taken a drumming, while public sector (PSU) banks have gotten off comparatively easily. If the current situation continues, one wonders where their market capitalization will plunge to. A complete drying up of the loan market combined with very high inter-bank and call money rates, if they persist will impact some balance sheets significantly in the coming quarter. Also expect some investments/ deposits to move from private sector banks to nationalized banks.

4. Financial intermediaries:
Investment banking is an ugly word; stock markets are on a deep dive;privat equity and PIPE (Private investment in Public equity) deals talks are going no where.Where will financial consultants, Boutique investment bank, stock brokers and various deal makers run to? They just have nowhere to go, at least for the time being.

5. Real estate:
The real estate slowdown had started long before the financial markets collapsed (it is another matter that prices did not come come down if you were in the market to buy). With interest rates for the sector remaining at astronomical levels, things look really bad. Even for projects that are complete and ready to move in, takers may be few as those who have to make their final payments may have all their money burnt in the stock markets!

6. Organized retail:
Organized retail was as it is, struggling to find its feet. The lack of money in the buyer's pockets means that more and more deals will have to be put out to get foot falls into the stores. The only silver lining may be that the price of real estate, one of the highest input costs for the sector may come down, albeit at the cost of the real estate sector.

7. Advertising:
This one is a no-brainer. When things go bad, one of the first things that get cut is the advertisement budget.

8. Media:
Advertising is what sustains media. with advertising budgets slashed, media can expect significant cuts in income.

9. Computer hardware and solutions:
Next in the line for cuts in spending, after advertising is IT spends. Hardware and software upgrades will be differed as will be new implementations. Service contracts will be renegotiated downwards.

10. Airlines & tourism:
Rather strange combination - the first one, already in the doldrums and the second in the midst of a boom. The impact on both will be complimentary. When personal expenses get differed,first in the list is holidays and eating out. Must do travel gets downgraded from air to train or road. When corporates tighten their belt, again, air travel and outstation accommodation gets trimmed. So, not the best of times for both industries.

11. Low end luxury goods:
This will come as a result of the great Indian middle class tightening their belts. So, those who were looking at stretching and buying their first entry level luxury car will fall back to a midsized choice. The low hanging fruit or entry level luxury businesses will be the most affected.

12 Branded Food & Medicine Market:
People would resort to the local available brands. A Fallback!


BalasBits said...

Very well written and a great analysis and thanks for your efforts.

Have been a slient visitor to your blog and this is my first comment. Very different narrative style.

I sense some sorrow/sadness in all your blogs ! Is this intentional ?

Keep blogging.......

Good luck in all your endeavors

ஜி said...

Very gud analysis.... Keep writing...

Indian said...

Nice article.

I hope you read these type of articles as well :)

Curious to know your thoughts.

தங்கவேல் மாணிக்கம் said...

திவ்யா, அருமையான ஜூஸ் சாப்பிட்ட திருப்தி. பிசினஸ் லைனுக்கு எழுதலாம் அல்லவா ??? முயற்சிக்கின்றீர்களா ????

வாரம் ஒரு தடவையாவது இது போன்ற அலசல்கள் பதிவானால் மிக்க மகிழ்ச்சி.

குப்பன்_யாஹூ said...

nice, But we all forget this after 1 month when some other issues have come up.