Go Back   Team-BHP > Around the Corner > Shifting gears


Reply
 
Thread Tools Search this Thread
Old 8th February 2008, 18:58   #1
Senior - BHPian
 
Surprise's Avatar
 
Join Date: Feb 2005
Location: Chennai
Posts: 2,287
Thanked: 123 Times
Default Will Recession hit so hard?

There were lots of talks going on about possible recession based on fears surrounding economy of United States. One is that IT services companies would be hit hard and the guys who bloated the market [iam not saying this ], will suffer max due to this recession. They add that whoever has bought properties banking on the appreciation of the property ignoring the "rental revenue" vs "repayment loan" equation will be the most affected. Hence lots of properties will be up for sale and the buyers will determine the prices of land/flat purchase . One of the example quoted is Thailand Crisis ( I dont know anything about it).

MY TAKE- Most of the transactions were for investment and always they can afford to lose that property, which is no way going drastically affect their living style. Definitely there would be an impact, but not the extent what I had mentioned above

Can someone throw more light on this?

Last edited by Surprise : 8th February 2008 at 19:00.
Surprise is offline   Reply With Quote
Old 8th February 2008, 20:21   #2
Senior - BHPian
 
Join Date: Jun 2007
Location: Kochi
Posts: 2,147
Thanked: 142 Times
Default

Those who have made "leveraged" investments - that is, borrowed money in short term to make long term investments in assets like real estate are going to suffer. There is no doubt about that.

And some people think that India will be insulated from from the real estate bubble burst are mistaken. A large proportion of Indian real estate bubble arises from Income tax sops for real estate investment. (Believe me - I have seen people who show INFLATED prices on documents just to claim higher loan to avail higher Income tax exemption - this while most actually show lower prices and pay the difference in "Black" money). Once the depression sets in, and people start losing jobs, (1000 have already lost - 500 at IBM, 500 at TCS!!!) there is going to be a domino effect, which will be apparent in may be 18 to 24 months.

I sincerely hope that I will be proved wrong though. I really want to be caught making a wrong prediction.
BaCkSeAtDrIVeR is offline   Reply With Quote
Old 8th February 2008, 22:02   #3
BHPian
 
sbasak's Avatar
 
Join Date: Nov 2005
Location: CCU-LTN
Posts: 607
Thanked: 7 Times
Default

When recession starts, people become very cautious about spending (you may call effect of speculation). So, they stop buying eveything but bare minimum. So, all luxury goods (like expensive cars, investment properties etc.) will sell less. This is turn will affect those in real-estate/automobile sector etc. So, this will act like a snowball. In western world, all experts are predicting 2008 to mid-2009 will be recession or recession like. The job cut simply proves the fact that we are still dependent on US/European market for IT market. The situation in 2001 was quite bad. But even at that time TCS didn't lay off employees. So, 2008 doesn't look promising. :(

Last edited by sbasak : 8th February 2008 at 22:05.
sbasak is offline   Reply With Quote
Old 8th February 2008, 22:34   #4
Senior - BHPian
 
rr_zen's Avatar
 
Join Date: Sep 2006
Location: Chennai, India
Posts: 1,710
Thanked: 258 Times
Default

From what economics has taught me, Recession is one of the stages of the business life cycle that every economy undergoes. The different stages are (in order of their occurence):

1. Boom or Prosperity
2. Recession
3. Depression
4. Revival

Just that we are experiencing phase 2 now and it is bound to worsen. It has to go through phases 3 and 4 inevitably to see phase 1 again.
rr_zen is offline   Reply With Quote
Old 8th February 2008, 22:53   #5
BHPian
 
mclarenracer's Avatar
 
Join Date: Oct 2006
Location: Seattle
Posts: 113
Thanked: 8 Times
Default

so far, it looks like you three are the only ones worried about the recession in India. it is funny if not outright comical to watch and listen to that Udayan guy on CNBC. when ever the market goes down his views on a down day are as ludicrous as a story of a saas-bahhu serials. i for one would wish we never see even one day of a down market. but if it comes always remember, we humans come back even stronger after trying times. FM of india is more of a reactionary person, with the powers he has, if he wants he can define how some of the world market go rather than just wait and see if world markets are down we will be down too.
mclarenracer is offline   Reply With Quote
Old 8th February 2008, 23:37   #6
Team-BHP Support
 
theMAG's Avatar
 
Join Date: May 2006
Location: Long Island, NY
Posts: 6,994
Thanked: 1,421 Times
Default

The thumb rule/cycle observed in IT is that the industry recycles itself on average, once every 3-5 years, especially those that are in OFD business mode catering to the US market primarily. These are typically the service verticals. Product companies and IMS are less affected by this cycle. Also, even those multinationals, while operating out of India, that are 100% EOUs and bill only in USD and not even in INR, such as HP, are also comparitively well insulated.

Last edited by theMAG : 8th February 2008 at 23:39.
theMAG is offline   Reply With Quote
Old 8th February 2008, 23:40   #7
Senior - BHPian
 
vivekiny2k's Avatar
 
Join Date: Feb 2005
Location: cincinnati, jabalpur,chennai
Posts: 1,241
Thanked: 163 Times
Default

Quote:
Originally Posted by mclarenracer View Post
so far, it looks like you three are the only ones worried about the recession in India.
Nope, it has already been discussed in a couple of other threads.
vivekiny2k is offline   Reply With Quote
Old 8th February 2008, 23:52   #8
Senior - BHPian
 
Join Date: Jul 2006
Location: Bangalore
Posts: 1,045
Thanked: 64 Times
Default

IT & IT services form a very small part of GDP in India. Indian economy has been doing really well outside of IT. One way to look at this is, a few years back IT companies figured prominently in top 10 companies as far as market cap is concerned. I remember Infosys occupied the top spot for reasonable amount of time. Now, Infosys is no 13 and other IT companies are after that.

So even if there are some challenges in IT sector, Indian economy should chug along quite nicely.
hondadude is offline   Reply With Quote
Old 9th February 2008, 00:09   #9
BHPian
 
Sush's Avatar
 
Join Date: Apr 2005
Location: Noida, New York
Posts: 308
Thanked: Once
Default

TCS periodically fires it's non performing employees. It has been doing this for the past couple of years and this year is no different.
The investment banking companies and IT companies will be hit hard but the intensity should be definitely less for IT companies working in other domains.
This is a good time for people who have saved lots of money because the home loan, home prices and car loans will become cheaper.
For example, in many locations in US, houses are currently available for unbelievably low prices.
Sush is offline   Reply With Quote
Old 9th February 2008, 00:33   #10
TDR
Newbie
 
Join Date: Jan 2008
Location: Heerlen, The Netherlands, EU
Posts: 23
Thanked: 2 Times
Wink

My take on this is that while the United States of America still is the "biggest engine" as far as World Economics are concerned, other large players like the upcoming Asian markets, the EU & Russia markets and even the South American, African and Pacific markets are gaining more and more importance. They all gain whilst the US loses importance, on the world market.

Living in the EU, when checking the ecomic pages of the newspaper, I see
a growing trend for investors from the EU to invest in other countries than
the US. Be it for sheer profit or just to spread the risks.. I don't know.

Be as it may. Yes, I think the world is going to get hit by the, inevitable,
recession in the US. Luckily for us all... World Economics don't depend
THAT much on the US, anymore... other mayor players can prevent a
"worldwide recession".

It's like my grandmother used to say, "save money before you buy, otherwise you pay for it twice, interest included".

TDR
TDR is offline   Reply With Quote
Old 9th February 2008, 00:49   #11
BHPian
 
jaibir's Avatar
 
Join Date: Dec 2007
Location: Bangalore
Posts: 317
Thanked: 48 Times
Default

Quote:
Originally Posted by Surprise View Post
There were lots of talks going on about possible recession based on fears surrounding economy of United States. One is that IT services companies would be hit hard and the guys who bloated the market [iam not saying this ], will suffer max due to this recession. They add that whoever has bought properties banking on the appreciation of the property ignoring the "rental revenue" vs "repayment loan" equation will be the most affected. Hence lots of properties will be up for sale and the buyers will determine the prices of land/flat purchase . One of the example quoted is Thailand Crisis ( I dont know anything about it).

MY TAKE- Most of the transactions were for investment and always they can afford to lose that property, which is no way going drastically affect their living style. Definitely there would be an impact, but not the extent what I had mentioned above

Can someone throw more light on this?
The difference is that people in the US borrow against their house. So its not just people who bought recently who are exposed to house prices going on but regular people who borrowed against their house to buy a new car or go on an exotic holiday. Now when the house price goes down, they suddenly have more debt than their house is worth.

The additional problem has been created by securitisation - the process by which the company who lends the money sells the loan to someone else. Now the mortgage loans are spread through the financial system. Thats why the mortgage problem in the US hit banks in Europe as well.

The fear and risk aversion created by problem in mortgages has spread to other forms of debt (such as corporate lending) as well as to the equity markets. This risk aversion causes lending to fall. In this situation, everyone (companies and individuals) have less money to spend. This creates the slowdown. One of the expenses that companies cut in a downcycle is IT spend - hence problems for Indian IT. The overall slowdown also hits other segments, such as garments and auto. India also exports these, hence causing growth in these areas in India to slow. Hence the US recession does hit Indian growth, although its not enough to push India into a recession as well.

Sorry for the slightly long post but explaining this stuff takes a bit of space.
jaibir is offline   Reply With Quote
Old 9th February 2008, 08:38   #12
BHPian
 
gkrishn's Avatar
 
Join Date: Aug 2004
Location: Bangalore
Posts: 584
Thanked: 36 Times
Default

Today's TOI had an article of deutsche bank setting up an IT park in mangalore(and hire some 5000 employees???). The recession in US will only push the mnc further this side. But the desi service companies will see huge margin squeeze. Need to see how they will withstand it...

One thing that i would like to see is, some respite in the RE market. Last heard that even in coimbatore the apartments are selling at 3000+/sq feet. That is almost on par with bangalore prices...

BTW this tcs and ibm firing has been taken too far i guess...
gkrishn is offline   Reply With Quote
Old 9th February 2008, 08:42   #13
Senior - BHPian
 
greenhorn's Avatar
 
Join Date: Apr 2007
Location: TN-14
Posts: 6,713
Thanked: 1,085 Times
Default

IT salaries had been driving a real estate boom. Rents have been gone through the roof, even in remote areas. and consequently land values. Hope this reins in things....
greenhorn is online now   Reply With Quote
Old 9th February 2008, 09:05   #14
Senior - BHPian
 
Surprise's Avatar
 
Join Date: Feb 2005
Location: Chennai
Posts: 2,287
Thanked: 123 Times
Default

If the salaries are cut by a huge margin, whoever taken heavy housing loans compromising a bulk part of their salaries will suffer for repayments. Margin of these people decides the intensity of the fall down

Quote:
Originally Posted by Sush View Post
For example, in many locations in US, houses are currently available for unbelievably low prices.


Will this happen in INDIA?
Surprise is offline   Reply With Quote
Old 9th February 2008, 09:23   #15
Team-BHP Support
 
Samurai's Avatar
 
Join Date: Jan 2005
Location: B'lore-Manipal
Posts: 22,045
Thanked: 13,496 Times
Default

Oh man, one more thread on the same topic?

Ok, let me explain it this way...er.. what's that sound?

(turns and looks back)

Holy cow! I mean cows, they have come home. I am done here.
Samurai is offline   Reply With Quote
Reply


Thread Tools Search this Thread
Search this Thread:

Advanced Search


Similar Threads
Thread Thread Starter Forum Replies Last Post
Effect of Recession on our Jobs lambuhere1 Shifting gears 512 12th December 2011 20:31
Innovative business ideas in this time of recession isldhn Shifting gears 25 11th October 2009 13:19
Recession in Dubai leading to migrants abandoning cars @ airport & fleeing country!!! supremeBaleno Shifting gears 31 27th April 2009 13:43
Hesitation, Confusion, Recession and then the Decision – ‘Budget’ ICE for a Swift Vxi d_himan In-Car Entertainment 16 19th February 2009 22:06
ANHC- Full Interiors, Rims & HIDs? Or should i let the recession get the best of me? Speeding@160mph Modifications & Accessories 16 22nd December 2008 10:48


All times are GMT +5.5. The time now is 05:05.

Copyright ©2000 - 2017, Team-BHP.com
Proudly powered by E2E Networks