Slow Down Break Down
Slow Down ? Break Down !! Economic Chaos resulting in Job Loss & Suffering of Common Man Factories Bandh… NaukariBandh 9% POSITIVE Growth in 2007-08 NEGATIVE Growth in 2009? A presentation on Facts of Indian Economy Dr. Kirit Somaiya Chartered Accountant, Ph.D Member BJP National Executive, Vice-President BJP Maharashtra
SLOW DOWN OR BREAK DOWN? Indian history is witnessing steep downslide in all segments of the economy. The vast investment in basic, core sector, infrastructure, housing sector in early 21st century gave momentum to the Indian economy. 8.5% growth since 2003. The jubilant Economy suddenly seems to have burst. • Bubble created in the Economy during 2007 & 2008 • Bubble has burst • Industry facing turmoil • Sensex disaster • Prices of 17 essential commodities doubled in 4 years • Closures, slow down in industries • Chaos in job market • resulting in • LOSS OF ONE CRORE JOBS & SUFFERING OF COMMON MAN
DISASTER SYMPTOMS • Financial services segment witnessed steep downfall • Real estate – lost estate • Large retailers/malls closing down speedily • Half of small scale industries of industrial townships facing closure • Several Large Industries have declared Closure /Partial Closure e.g.: • Tata Motors • Thyseeankurup Industries • Ford Motors • Tata Yazaki • Kirloskar Brothers • Bosch • Bharat Forge • Bajaj Auto
DOWN…INCOME TAX COLLECTIONS • Direct Tax receipt down by 13.4% in Dec 2008. • Direct Tax collection down to Rs.52,749 Cr in Dec 2008 against Rs.60,976 Cr of December 2007 • Central Board of Direct Taxes Chairman stated “Direct Tax collection shall be short by Rs 1 Lac Crores in 2008/09 • The tax collection will be less than Rs.3 lac crore against the target of Rs.3 lac 95 thousand crores
SLOWDOWN BLUES: TAXES COLLECTION DOWN Tax Times
FISCAL DEFICIT UP • Revenue deficit was estimated at Rs.55,184 crores in the Budget of • 28.2.08. This has gone up by Rs.1,73,830 crores as on 31.12.08
FOREX RESERVE DIPS • Forex reserve down by $4.5 billion to $247.6 billion • Forex reserve had gone up to $315 billion • The reserve was increasing since the year 2000 • Forex reserve is coming down consistently for more than 3 months
GOVT. EXPECTS JAN. EXPORTS TO FALL 22% • December figures showed exports declining by 1.1% to $12.69 billion against 21% growth in December 2007. Exports had shrunk 12.1% in October 2008 and 10% in November 2008 • Exports have dipped for the first time in 7 years • Trends of overseas shipments taking a plunge in January due to slump in demand for Indian goods in the global market • India may achieve $170 billion exports in the current fiscal against the target of $200 billion
FUNDS FLOW TO INDIA SHRINKS Rs.94,000 CRORE • External commercial borrowing (ECB) and short-term credit from abroad contributed 8.2% in 2008-09 of the financing against 20% in 2007-08 • While credit to the agriculture & service sectors have remained largely unchanged, personal loans have declined due to falling housing loans
TAX COLLECTIONS - DOWN • Since Diwali, States & Union Govt. experiencing steep downfall in tax collections. • Maharashtra Tax Collections down in Nov & Dec 2008.
VAT SLOWDOWN – MAHARASHTRA • VAT means actual use – consumption • Oct. 2008 -3197 • Nov. 2008 – 2809 • Dec. 2008 – 2474 • Jan. 2009 – 2274 • Stamp Duty Collection down by 25-30% by Rs.1200 Crore
INCOME FROM VAT MAHARASHTRA (ALL FIGURES IN RS. CR.) VEHICLE TAX
REVENUE COLLECTION-MAHARASHTRA STAMP DUTY (upto Dec 2008) FIGURES IN RS. CR.) Against the target of 7200 Cr. In 2007-08, income was 8500 Cr. However, in 2008-09 against the target of 9600 Cr. upto Dec 08, Rs 6448 Cr have been collected
DROP IN OCTROI (CONSUMPTION) Dec. 2008 in comparison with Dec. 2007 • Mumbai 19.16% • Pune 20.22% • Pimpri-Chinchwad 32.06% • Nasik 10.57% OCTROI COLLECTION – PIMPRI-CHINCHWAD (PUNE) • COLLECTION Rs. Crores • September 2008 58.00 • October 2008 94.00 • December 2008 44.20
COMMERCIAL VEHICLE-TRUCK SALES DOWN BY 73% IN DECEMBER 2008 • MCV and MCV include tipper truck sales
MELTDOWN SIGNS REGISTER ON THE ROAD • In a sign that the economic meltdown has hurt the automobile industry, Regional Transport Offices across Mumbai reported a big drop in registration of vehicles in the last few months.
SALES – DISASTER ? COMPARISON OF COMPANIES SALES • Bajaj Auto Ltd. – Sales down to Rs.7.90 Cr in Sept. 2008 from Rs.57.39 Cr in Sept 2007 • D S Kulkarni Developers Ltd. – down to Rs.-26.64 Cr in Jun 08 from Rs.122.10 Cr in Mar 08 • Idea Cellular Ltd. – down to Rs.47.05 Cr in Sept 08 from Rs.147.34 Cr in June 07 • D F L Finance Ltd. – down to Rs.7.88 Cr in Sept 08 from Rs.98.31 Cr in Sept 07
DOWN, DOWN – LARGE RETAILER • Large Retailers, Malls found empty. 40% Closed e.g. Suvidha 40% Stores closed down in Mumbai • December 2008 sharp fall in Sales • “These are unpredictable times, we are also surprised. Our January sales will be in double digits” – Kishore Biyani – Managing Director, Pantaloon Retail
SUBHIKSHA – LARGE RETAILER CLOSING DOWN PART OPERATION • Subhiksha has chain of 1600 stores • Turnover in 2008 – Rs.2305 crores • Total staff employed – 15,000 • 6500 stores closed down • Due to lack of funds, may closed down half of its chain of stores • Unable to pay rental and salaries of employees
CAPITAL MARKET • 25% Stocks / Shares on NSE & BSE found illquid in Dec. 2008 • 9th January BSE Sensex touched 21000. Finance Minister immediately came on TV & stated “Its my economic policies. India will not look back. We are now in double digit Growth”. • Bull run in an Open Economy - Capital Market may be accepted but conversion of it into Bubble is dangerous. Bubble is to Burst, we are observing the same now. 2009 could be the worst year India has seen in decades.
SMALL INVESTORS RUBBED • Bubble was created in Capital Market in 2007-08 • Sensex was manipulated upto 21000 from 15000 • Promoters (bogus intention) sold their stakes at higher rates • Promoters pledged their stakes at higher value with banks and financial institutions and borrowed heavily • Satyam Promoters’ stake has come down to 4% as on 7.1.2009
3 CRORE SMALL INVESTORS LOOTED • Congress Govt. – Mr. Chidambaram pushed creation of Bubble in Share Bazar – Capital Market • Sensex was 21000 – Jan 2008 • Sensex now 9000 – Jan 2009 • Small Investors of Share Bazar, Mutual Fund, ULIP lost their savings • 1 Crore Small Investor-Demat Accounts holders & 2 Crores Small Investors of Mutual Funds, Unit Link Insurance Policy lost heavily. • Rs.10000 Invested in year 2007 has become Rs.4900 now
DIWALI OR DIWALA • Since Diwali (Muhurt) 2002 Sensex gone up till Diwali of 2007. At the end of Samvat year on Diwali 2008 Sensex lost 55%, loss of Rs.35,94,012 Crore of Market Capital
SMALL INVESTOR – MUTUAL FUND DISASTER Largest Mutual Fund Companies Loss in 2008 • Franklin Templeton Mutual Fund - - 37.85% • ICICI Prudential Mutual Fund - - 26.13% • UTI Mutual Fund - - 19.30% • Baroda Pioneer Mutual Fund - - 63.51% • Sahara Mutual Fund - - 28.07% • Taurus Mutual Fund - - 47.21%
TOP 10 PERFORMANCE SCHEMERETURNS*(IN%) UTI MNC -32.34 Birla Sun Life Asset Allocation -32.51 Birla Sun Life Dividend Yield -33.27 UTIDivident Yield -34.08 IDFC Imperial Equity -35.21 FT India Life State FoF -36.77 UTI Contra -37.11 DSPBR Top 100 Equity Inst. -37.21 Sahara Growth -37.48 DSPBR Top 100 Equity Reg -37.67 Source : Value research;*1 year
MUTUAL FUNDS GET POORER BY RS. 1,50,000 CRORE • In 2008 Mutual funds became poorer by about Rs 1,50,000 crore, or about one-third of their total size. • The mutual fund industry in India, with nearly 36 members, was regarded as a safe avenue of mutual gains for investors till 2007 — when their total wealth grew by more than Rs 2,30,000 crore to Rs 5,50,000 crore. • However, in 2008, lost Rs 1,50,000 crore, bringing its asset size to nearly Rs 4,00,000 crore.
90% IPOS TRADE BELOW ISSUE PRICE • 38 of 42 initial public offers (IPOs) that were listed since January 2008 trading below their issue price. • Mumbai-based engineering and construction company Niraj Cement Structural's is the worst performer. The stock at Rs 17.80 on the BSE, down 90.6 per cent from the issue price of Rs 190. • For the remaining 37 firms, 2008 has been no different. Stock of companies — Chemcal Biotech, First Winner Industries, Tulsi Extrusions, — are down over 80 per cent from their issue prices.
Defaults threaten fixed maturity plansJoydeep Ghosh & Sidhartha K / Mumbai October 8, 2008, 0:22 IST – BUSINESS STANDARD The mutual fund industry is under pressure and not just from falling markets. Fixed maturity plans (FMPs), which have garnered Rs 102,133 crore of average assets under management (AAUM), are facing the prospect of rising defaults on their investments in real estate and non-banking financial companies (NBFCs). This implies that if there are redemption pressures from their corporate and retail clients, these FMPs would have to raise cash from other resources to meet the demand. FMPs contribute almost 19 per cent to the Rs 5.29 lakhcrore average assets of the industry. Though mutual funds have turned cautious about investing in these sectors since early 2008, the fear is that the money that has already been invested could be in for some trouble in terms of payment delays. Sources said some of the leading real estate companies have defaulted on their repayments and are seeking rollovers. And though there hasn’t been any huge redemption pressure, mutual funds are gearing up for it, especially from companies that have invested in the FMPs. A senior executive in the industry claimed that around 10 to 15 per cent money of the total AAUM has been invested in real estate and NBFC papers. Over the last two years, the real estate sector was offering 1-2 per cent higher yield than the market, luring many fund managers to invest almost 60 to 70 per cent of their corpus in them. In fact, for the past eight to ten months, most fund managers have stayed away from these papers. Some like UTI Mutual Fund stopped investing in them since December 2007 and Kotak Mutual Fund even declared in the offer documents of some of their FMPs that they would not have any exposure to real estate and NBFCs. Another important development in the recent months has been that all fund houses have started declaring their FMP portfolios to investors. Earlier, only a few leading funds would do so. The threat of exit of large investors accentuates the problem for FMPs as there will be pressure or withdrawal. Also, little money will trickle in from fresh investors to counter the outflows WHAT ARE FMPs? FMPs are funds in which investors park their funds for one to six months, sometimes for more than a year. These plans invest in corporate bonds, bank deposits and commercial papers. The longer tenure is offered to take advantage of double indexation benefits. This implies that if someone invests in an FMP for 13 months, say, between March 2008 and April 2009, his capital gains will get indexation benefit for 2007-2008 and 2009-2010. So his tax liability would go down substantially. That is why retail investors prefer to invest in the longer- term FMPs. The shorter-term ones cater to the needs of corporate clients. Market experts say retail investors contribute 20 to 30 per cent of the AAUM. “There may be isolated instances but the overall system is sound,” said the head of a fund house. Though the industry has not seen any pressure from corporate clients as of now, the head of a financial conglomerate said there have been some withdrawals by companies in the last few weeks to meet their immediate liquidity needs. Over the last fortnight, the liquidity in the market has been tight as companies had to pay advance tax and there were large borrowings by cash-strapped oil and fertiliser companies. As a result, banks borrowed heavily from RBI and call rates touched 17 per cent. According to senior banking sources, a large fund recently had to borrow on the call money market at over 20 per cent to meet redemption pressures. Last month, a medium-sized fund faced redemption pressure on its FMP from high net worth individuals, when it was declared that the company was being taken over. “When investors are willing to even shell out 2 per cent as exit load to redeem, it becomes very difficult for us,” said a fund manager. Many others have resorted to rolling over schemes to avoid paying their clients. Mutual funds, on their part, said investor wealth is not at risk at the moment.
TATA STEEL – STEEP DOWN • Revenue & profit of Tata Steel goes up and up till Diwali of 2008 • Steep down slide since Diwali 2008 may be observed • Turnover and profit of Tata Steel for the Quarter ended 30th June 2008 was Rs.6,177 crores and Rs.1,488 crores respectively. • The same went up by 75% for the Quarter ended 30th Sept. 2008 • Steep downfall observed in 3 months ended 31st Dec. 2008. Profit down by 80%, turnover down by 40%
TATA MOTORS DOWN DOWN • Revenue of Tata Motors has come down to Rs.4758 crores in the Quarter ended 31.12.08 from the previous Quarter of Rs.7078 crores • In just 3 months, the Profit of Rs.346 crores has turned into loss of Rs.263 crores