recession & opportunities for keralites nrk

8/13/2019 Recession & Opportunities for Keralites Nrk

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RecessionFrom a Keralite & NRK perspective

What is Recession?How did it happen?How will it affect India, Kerala and Gulf?

How will it affect us?What are the opportunities?

what every keralite should know



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This presentation is prepared with the objective of informing the

common man on what recession is and how to make best use ofit.

Best care has been taken by the author in compiling theinformation and presenting it.

The opinions represented here are observations of the author,and anyone who uses this information has to do his own due

diligence and investigation, and cannot place any blame or faulton the author or his firm for any consequence from using the data

in this presentation.

Hope you have a good reading.

You are welcome to forward this information to any of your friends

Any comments or suggestions, please email:[email protected]



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Global Recession

Source: http://en.wikipedia.org/wiki/File:Recession_2008.png



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What is Recession?

• In simple terms, an economy is said to be in recession, when

– The GDP of a country begins to fall for 2 or more quarters

– This fall in GDP continues for many more months, slowing down the economy with it

• GDP is the total cost of all goods and services produced in the country in a year.

What Causes Recession?

• Recession is a normal business cycle

• An economy naturally expands for 6-10 years and then go in for a recession for about 6 months to 2 years. It iscorrection process, when consumers/investors realize they are buying at rates beyond its true value

• This loss of confidence, makes buyers/investors to sell off their assets or abstain from buying new

• This act of not buying or selling off, is followed by everybody, and the prices of goods, commodities, land and

stocks fall rapidly• This causes Recession.

• The time for investors or buyers to feel that the economy has reached its bottom, and can now invest or buy, iswhen the boom (recovery) starts. The period from the start of negative sentiments to positive sentiments is theperiod of Recession. Historically it has ranged from 6 months to average 2 years



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History of Global Economic Crisis

1930-1939The Great

Depression

1982-83US

Recession-due to over

production1990s

USRecession-collapse of

junk bonds

2001US

Recession-Dot Com

bubble burst

2008US

Recession-Mortgages

crash

1997-1999Asian

FinancialCrisis



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History of Economic Crisis in India

1972-1974

steep rise inglobal oil prices,

when inflationreached 20% in

India

2008US

Recession-Mortgages

crash

1997-99

Asian FinancialCrisis, it slowed

down India growthfrom 7% in 1994 to

4.5% in 1997



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What was the reason for this Recession?

What caused Recession in USA?

• Due to heavy competition in Home Loans, banks in USA began to give loans to people with poor credit worthiness(that is without considering if they can repay the loan) or unstable income.

• These banks came into trouble, when these people where unable to pay back the loan. The banks became at lossand some of them might close down, taking with them the savings of many depositors.

• Now, when the loan was easy to get for anyone, people started to invest in real estate. The construction industryboomed.

• When the people failed to pay back the loans, the banks, real estate and the construction industry collapsed. This

along with rising oil prices created problems.

• And this trend began to affect other sectors of the economy as well.

• Since most countries around the world, like India and GCC countries have economic connections with US, theslow down there will affect them as well



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Impact of Recession in India- Negative Aspects

• According to the Assocham Business Barometer survey of 250 CEOs,

– About 80% projected GDP growth for 2008-09 at 7.1 per cent from the earlier 7.6 per cent, with strong waves ofnegative economic sentiment.

– Over 80% of CEOs said manufacturing sector, which has witnessed a negative growth of 1.2 per cent in October,would take double hit from the rapid slackening of domestic demand and heavy shrinkage in new export orders.

– Services sector which recorded an average growth rate of 10.7 per cent in last three years is expected to deteriorateto below 9 per cent growth rate mark

• According to FICCI (Federation of Indian Chamber of Commerce & Industries), – A state of uncertainty is gripping over many services sectors, including financial services, software, outsourcing, civil

aviation and real estate, due to the global financial crisis, credit crunch and higher interest rates during the recentmonths, according to a survey by the Federation of Indian Chambers of Commerce and Industry.

• According to McKinsey,

– The country will run out of capital to support economic expansion.

– Sectors like textiles, metals and mining, automotive, cement, real estate, media, IT need working capital to fundprojects underway.

– The economy is under stress with growing bank non-performing loans and job losses in sectors like textiles. – The firm said operating margins in almost all sector have reduced and will fall further over the next two years. – Increased cost of debt will erode the profitability more and interest coverage – Pressure on the real sector likely over next two years will have negative consequences for the broader economy – According to McKinsey projection, even in steady state, infrastructure financing would face a deficit of $150 billion and

it can increase sharply in current scenario.

– Along with a deficit in the infrastructure sector, fall in corporate savings and foreign inflows can also result in apotential shortfall of $200 billion of the total savings and investment



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Impact of Recession in Kerala-1

• The Kerala Tourism has been affected by the global financial crisis

– Drop of 35% in foreigners arrivals (compared to last year) leading to large cancellations ofhotel rooms, resorts and house boats

– The backwater tourism is expected to head into worst crisis in 15 years. According toHouse Boat Owners Association, the business is down by 50 per cent and cancellations

come to around 75 per cent – The backwaters (in Alapuzha alone) used to earn a business of Rs 35 lakhs per day

(through some 400 house boats), now only has a sale of Rs 10 lakhs or so daily. If thecrisis continues, about 2000 people will lose their jobs

• Remittances from abroad

– If the financial crisis continues, Kerala with its economy centered around remittances fromabroad, stands to gain from the depreciating rupee

• Industries based on US and European markets most hit

– Textiles and garments, tourism and fisheries, which relied mainly on the US and EU, arethe worst affected

• Decline in State Revenues

– Excise duty alone has registered a decline of around 15 per cent and if the situationcontinues, the State will be severely hit

According to StateFinance Minister, TMThomas Issac –

the best way to resistthe downturn was toattract moreinvestments in theinfrastructure sector,with active participationof small and mediumprivate investors,

Solution to crisis



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Impact of Recession in Kerala -2

• Impact of recession in Gulf – The gulf countries are getting affected due to the recession and falling oil prices. This

means that salaries/job opportunities may shrink and that alone will cause huge impact onthe Kerala economy.

– No new projects are being undertaken in the Gulf countries due to the economicmeltdown. This could result in thousands of Keralites employed in those countries to becompelled to return during 2009-2010

• Employment – About 1.5 lakh employees engaged in Kerala’s traditional industries will lose job as a

result of the crisis,

• Exports – Export of coir, marine products, cashew, spices and other items had recorded a decline of

15 to 30 per cent – Steep fall in price of rubber in the wake of global recession with its grim fallout onautomobile sector is bound to hit Kerala's economy badly as state accounts for 92 percent of India's natural rubber production.

• Growth Rate – State’s growth rate was likely to come down to 6 from the present 8.1 per cent.

According to StateFinance Minister, TMThomas Issac –

the best way to resistthe downturn was toattract moreinvestments in theinfrastructure sector,with active participationof small and mediumprivate investors,

Solution to crisis



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Impact of Recession in Gulf

• The recession due to flight of capital has started affecting the Gulf region, and is expected to affect the job marketseriously

• The Indian expatriates who contribute to the bulk of work force in Gulf countries is expected to have a hard time.Hundreds of employees have already lost their jobs in construction, real estate and financial sector.

• About 80% of the construction workers in GCC are Indians, and with the construction sector hit the hardest, their

future is in the dark• Dubai had been the hotspot of development for the past many years, and it stood as the largest market for

speculative buying of some of the world’s most prestigious projects. Needless to say, with the recession, Dubai ishit the hardest among other GCC cities

• Banks in the region are reviewing credit policies and loans have become harder

• Banks have setup higher salary ceiling to approve personal loans and easy credit on credit card is no longer easy.This is quite opposite to the situation in past where credit cards were easily given to anyone

• In way of remittance, Kerala alone was expected to receive Rs. 42,000 crores this fiscal year, but the situations donot look that promising anymore

• The Gulf economy is expected to have tougher times ahead

• Some GCC countries are planning to increase the minimum salary required for expatriates to bring in their families



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Impact of Recession in India on Sectors

TransportRetailReal EstateLegal Consulting

LeatherJewellery ExportsIT / ITESInfrastructureRelated

HR & RecruitmentExportsEvent MgtBusiness Consulting

BPOB-SchoolsAviationAd Industry



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Most investors wish to invest in a business when it is doing very well. Because they are convinced of itsperformance.

But successful businesses DO NOT need capital from others, or they will charge a very high premiumfor the Goodwill.

So most investors end up not investing anywhere, and miss golden opportunities.

The real smart investor invests in good companies, when they are having temporary problems (likeseasonal recession or off seasons). For this is a time, when the investor can get a share in that

company without paying high or any goodwill. Once that recession is over, these businesses get back

in form!

For the riskier investor, who targets higher profits, he can invest in startups so that he can sell hisshares to outsiders at a very high premium, after 2-3 years.

Investors who really make money, are those who wait and give time for their invests to grow.



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About the Author

Capella is headed by Mr. Ameen Ahsan, as the Managing Director. Mr. Ameen Ahsan is a Corporate StrategyAdvisor who has done his masters in Finance & Investment from Exeter University, UK.

During his study at Exeter University, he was the Chairman of the fund that won the International PortfolioManagement Award in 2001, an award by INVESCO and BFS Securities in association with the School of Business& Economics (Exeter University).

On the professional front, Ameen Ahsan had worked as Strategy Advisor for a leading Dubai based company, andas Consultant at a German strategy advisory company (MESA, now OC&C UAE). Ameen has exposure in sectors

as Service (Business Consulting, Publication) Industrial (Confectionery, Publishing Press), Trading (FMCG, OfficeStationery), Tourism and Privatization of Govt Companies.

Ameen is consulted by business houses on various corporate strategy related issues. His articles on businessstrategies have been published in leading English and Malayalam publications.

Ameen has international exposure and has travelled to United Kingdom, France, Germany, Belgium, Malaysia,

Oman and UAE.

Ameen AhsanMA Finance & Investment (UK), BBM

MD & CEO



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About Capella

• Capella Ventures is the venture consulting and management division of Capella ProjectsConsulting Private Limited (founded in 2008)

• Capella Ventures is into the business of providing consulting, advisory and research services tonew ventures and initiatives in association with promoters who have the relevant technical

expertise.

• Our contribution in each project is by providing consulting, project management and investorrelationship services.

• We provide total turnkey solutions to companies to grow (by organic or inorganic means).



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Reference

• http://recession.org/library/

• http://amitkottisa-itrecession.blogspot.com/

• http://news.bbc.co.uk/2/hi/south_asia/

• http://www.thehindu.com/

• http://www.thehindubusinessline.com/

• http://placementfirst.com

• http://www.keralatips.org/ • http://en.wikipedia.org/

• http://www.rediff.com/money/

• http://www.blogcatalog.com/

• http://www.financialexpress.com/• http://timesofindia.indiatimes.com/ • http://www.ayurvednews.com/

• http://www.indopia.in/India-usa-uk-news/latest-news/ • http://keralaonline.com/news/ • http://finance.indiainfo.com/2008/ • http://business.outlookindia.com/ • http://goldnews.bullionvault.com/ • http://www.hinduonnet.com/2008/ • http://sify.com/finance/ • http://www.commodityonline.com/news/

• http://www.mathrubhumi.org/ • http://economictimes.indiatimes.com/

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