GET READY INDIAN ECONOMY

The rising number of COVID patients in India simply cannot rule out that there will be no chance of an extended lockdown of 2nd level. Another round of wave of the increase cannot be ignored. Indian economy struggles will social distancing since many industries cannot adopt or follow social distancing since that does not generate to get back to old norms.  Corporates and individuals both are suffering under the same.  Keeping this in mind the government stimulus package will be going for wild toss and more liquidity injection will be required. Further, any trade war threat between the US and China which is very much evident will make killing for the global economy.

We find that Merger and Acquisition will grow in Fy-21 and Fy-22 as much the small business will be sold and merged. Economies of scale will come into play in Q3 and Q4 of FY-21. Pricing of goods will be evaluated as commodity cost and fixed cost have been eliminated or will be reduced further to meet the margins and keep the business alive. Re-negotiation of pricing and fixed cost is yet to rise compared to what we have witnessed in the last 3 months of Fy-21.

Sectors like Infrastructure and construction will bleed more capital as cost of delay increases and also there is no clarity when the labours will be back and when the work will begin. When life will be back where social distancing cannot be adopted.

One of the key areas which we need to keep in mind is about the borrowing needs of the corporates and how much liquidity is going to be invested in the formation of a new asset for the long term. FY-21 is being taken as wastage but what about Fy-22 and Fy-23. I am quite sorry to inform that our analysis reflects that FY-22 and end and FY-23 Indian economy will achieve the fruits of growth. Till that time it will be more of a struggle. Please note profits are zero and debt is compounding and even low-interest rates on a huge sum of borrowing turn out to be a Tsunami for corporate India.

Business valuation/Debt to profit and net debt to net worth is a major area of concern. Rebalancing of economy and business will cost huge and significantly high. The impact on Indian industries and sector will be more of chain action likewise if FMCG and Retail segment don’t get growth there will be a significant impact on the Real Estate. Office rentals will be under threat as corporates struggles. Work from home replaces the fixed cost of the companies as well as the real estate sector struggle amplifies.

Getting the market share will now be a big battle. Companies will look for direct channels as margins and profits cannot be shared as lockdown has killed the liquidity available in the company. New business models of the supply chain have already kicked in and will take huge shape from swiggy,zomato,ola and uber.

Discretionary spending will be down and more health-based consumption will increase. Gems, jewellery, Shirts, fashion products will be under threat hence consumption and industry growth will be muted to long a period of time. A marriage which is big business is now being either delayed or their costing is being cut down.

The next level of war which will come up from retails and consumption industry will be the discount to clear sales and also to ramp up revenues. The cost has been cut down and more cost-cutting will be done hence the margin adjustments will be played accordingly. Liquidation of inventory is about to begin. 

Service industry-based migrant labours are going to be more impacted than manufacturing. The cost-cutting of the service industry is going to be a major blow.  The gold mortgage will now grow up now in the rural a well as urban as household balance sheets are stretched and getting more stretched. Those companies which were able to pay the salaries and fixed cost in the last 3 months (taking June) may not be able to continue if the lockdown extends. The more pain is stored for the 3rd quarter or 4th Quarter of FY-21 where companies will struggle more as the burden of the moratorium will play the dice.

We have more pains and we need strategies accordingly.