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Eventful past, bright future?

BT takes a close look at sectors across the economy, noting the big events and placing on record the expectations for 2009.

E. Kumar Sharma        Print Edition: January 11, 2009

There was never a dull moment in the world of business in 2008. From health care and IT, to aviation and real estate, deals were being brokered, brands were launched and firms merged, acquired or sold even as the Sensex rose sharply and then plunged to new depths. Here are the most significant events in each sector and a peek into the expectations for 2009.

Hospitality
For most of the year, this sector has raked in the moolah as the average room rent remained high. Deepening global meltdown, slowing domestic economy and eventually the terror attacks in Mumbai had a devastating impact on the sector.

Expectation 2009: No recovery in realisations is expected, especially with new capacities being created and the tourism industry reeling under the terrorist attacks.

Microfinance
Mainstream investors (the likes of Sequoia Capital, Sandstone and Legatum) built on their investments in the sector. Mainstream professionals, like bankers, are entering microfinance.

Expectation 2009: The financial meltdown is likely to sober up the craze for growth at all costs. There could be a re-look at portfolio quality and greater investment in internal controls, perhaps leading to more emphasis on reporting on social performance indicators (like livelihood, employment etc).

Pharma
The big news here was the Ranbaxy-Daiichi Sankyo deal. The promoters of India’s biggest pharma company decided to sell out. It’s seen as a signal to others in the space.

Expectation 2009: Market for generics to pick up abroad (particularly in the US market) considering Obama’s focus on cutting health care costs.

Health care
The Budget 2008-09 granted a fiveyear income tax holiday to all new hospital projects in smaller towns (Tier-II and Tier-III towns). The impact is yet to be seen.

Expectation 2009: Despite slowdown, growth in this sector is expected to continue. The next 12 months are also likely to see the first clear signs of health care delivery going beyond the metros.

Automobiles
The industry was seriously impacted by the global economic meltdown. Lack of positive sentiment in the market coupled with shortage of finance and bleak job prospects lowered the demand.

Expectation 2009: The sluggishness is expected to continue for at least the first half and there will be a bottoming out thereafter.

Retail
Few in this sector are now talking of aggressive roll-out plans. But perhaps, a key positive has been the fall in real estate prices. It’s important considering that, depending on the size, location and other factors, real estate costs typically work out to between 5 and 10 per cent of retail investments.

Expectation 2009: Instead of a mad rush for numbers, growth is likely to be more balanced (more measured and based on market demand and costs involved).

Agriculture
The big bang was the Rs 60,000-crore loan waiver scheme announced in the Union Budget for 2008-09. The year saw agri prices shoot up across the board with corrections happening only recently in some cases.

Expectation 2009: With fall in some commodity prices, one could expect more steps towards reforms in agricultural marketing and distribution.

Aviation
The country saw two world-class greenfield airports—in Bangalore and Hyderabad—taking off. Issues of cost pressures came to the fore with the famous lay-off drama at Jet Airways—apart from Kingfisher and Jet coming together in an operational alliance to rein in losses.

Expectation 2009: Troubles faced by the sector are expected to continue with tourism and travel taking a backseat. Expect sluggish growth.

Information Technology
The slowdown in the US has been the talk of the town, though the impact has still not been fully felt. Arguably, for the first time this industry felt substantial cost pressures with very low salary hikes (estimated in the region of 3 to 5 per cent as against 12 to 15 per cent earlier). A year with a lot of speed breakers.

Expectation 2009: Growth rates are expected to be half of what it was earlier (between 12 to 15 per cent as against 28 to 30 per cent a year ago).

Engineering & capital goods
Major projects hit by slowdown. Expansion plans on hold. Lack of financial options also added to the problems. A major factor has also been the rise in interest rates— from 9-9.5 per cent to 13.5 per cent. Profit margins have been squeezed.

Expectation 2009: Prospects are expected to improve with softening of interest rates, but the fortunes of this sector are linked to the pick-up in the economy.

Infrastructure
The big news here was the relaxation announced by the Reserve Bank of India for companies to raise ECB (external commercial borrowing) without having an import content. However, options at fund raising dried up with nearly no dollars available post-October. Availability of credit became a major issue.

Expectation 2009: Growth is now linked to availability and cost of credit. Boost to sector likely if banks raise the 15 per cent sectoral cap they have for lending to players in this field.

Real estate
The sector saw huge ups and downs this year. With prices falling now, expectations of a further fall are making people postpone investment decisions.

Expectation 2009: Sluggishness is expected to continue with buyers still preferring to wait and watch. The growth in this sector is expected to be more balanced with more serious players and fewer speculators.

Power
Poor availability of funds coupled with rise in cost of funds hit the sector, particularly in the second half of the year. Inflationary conditions meant equipment costs were up by 30 to 35 per cent . Rise in interest rates from around 11 to 13 per cent and exchange rates seeing rupee move from Rs 42 to Rs 50 to a dollar added to the woes.

Expectation 2009: Major players may continue to find it difficult to reach financial closure if liquidity issues are not addressed. Companies hope banks will take a fresh look at the sectoral cap and perhaps group exposure limits will be raised.

Broking
The meltdown coupled with the crisis in major global investment banks forced many FIIs to liquidate their positions in Indian companies, impacting their stock prices. The market sentiment was badly hit.

Expectation 2009: Since the market sentiment is expected to remain down (by some estimates, at least for the next 12 months), the broking business will remain sluggish.

Consumer durables
Despite money getting dearer alongside limited finance options, the consumer durables industry posted a good growth of around 15 per cent in 2008.

Expectation 2009: The prospects are now linked to the sentiment about the economy and the availability of finance. To what extent companies are able to handle the cost pressures will determine the growth path in 2009.

Cement
Cement prices were in the news for most of 2008. First, following inflationary pressures, the government asked companies to contain price increases. In the second half, fall in demand ensured that prices fell on their own.

Expectation 2009: Depressed prices are expected to continue as additional capacities fructify next year.

Metals
This sector was impacted by the global economic crisis, more severely after October. There has been an almost 50 per cent fall in prices across metals (base and ferrous) compared to the levels in January this year.

Expectation 2009: Prices will continue to remain low. The sector’s fortunes are directly linked to the pick-up in the economy.

Banking
Shaken up by the events in October, most banks have taken a pause, going for internal review and consolidation. Investor concerns were heightened and even majors like ICICI Bank came in for closer scrutiny.

Expectation 2009: Given that most Indian banks are well capitalised, with NPAs in control, growth will pick up in 2009, though investments now will be closely scrutinised, and there will be increased pressure on internal controls.

FMCG
There was heightened activity in retail services with companies opting to build on their forays into retail. With increased penetration into rural markets, there was uptrading (industry jargon for consumers opting for some superior items), while the urban market saw some downtrading, because of inflation.

Expectation 2009: Instead of bringing in western variants, companies expect to continue focussing on localisation of global trends and move more towards wellness.

Paper
Excise duty reduction from 12 to 8 per cent on paper and paper products, was the most significant development. The sector continued to build on its 8 to 9 per cent growth rates over the last three years. Only a third of the planned Rs 10,000-crore capacity outlay got invested in 2008.

Expectation 2009: Thanks to the financial meltdown, international paper prices have declined and this could have an impact on China, which apparently has huge inventories that could get dumped in a growing Indian market.

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