I have recently been talking to a lot of businessmen (part of my job being a banker). While most of them are bit reserved about adding new capacities, almost all are unanimous in saying that there is a slowdown in the market. I partly agree with them but then I ask them a question which I think makes them introspect a little bit! Almost every businessman (again anecdotal evidence and not researched evidence) had, in the good old days, invested heavily in real estate. The common thinking had always been, real estate will always go up, isn’t it?
With the IL&FS fiasco and DHFL debacle, the real estate market doesn’t have enough liquidity to sustain itself in the short term. Coupled with a drop in demand due to unfavourable trade conditions, businessmen are finding it hard to service both business debt and/or property EMI (Most of the property purchased is in the name of directors/partners, and not in the name of the company). Now what this seems like is a slowdown, but what it is, is a miscalculation of risk.
Risk management is the cornerstone of any sustainable business. It’s very easy to be swayed when the going is good, but very difficult to change course when the tide turns. I have telling all my clients, especially exporters to keep hedging their receivables. But hey, if the rupee has touched 72 levels, why wouldn’t it touch 74 or 75 levels, is what I am asked. For that I try to reason that, it is better to be sure of what my receivables situation looks like now, rather than punting on the market and then not even being able to realise my pricing for the order. But Greed, for the lack of a better word, is always the fact of life.
So, to sum it up, who wants to know, if this is a slowdown or a recession? Depends on who are you talking to. If you are talking to a prudent businessman, it’s a slowdown and would probably be over once the trade war is resolved. If you are talking to anyone else, it’s a recession which is going to continue way into the next FY.
All I can say is, I am watching from the side-lines. It’s going to be tough but I am quite sure that we would be able to emerge out of this situation relatively better off, if we embrace risk management in the right spirit.
P.S – I wrote most of this post before the GDP figures came in at 5% growth QoQ. So, this would seem a little jarring to anyone. I would still stand by my point that this is a good time to focus on the basics and work on risk management as a good business practice.