'India Inc's pains to worsen in coming quarters'

Corporate India is in for a more painful period, as profitability will take a hit over the next six months, ICICI Bank CEO K V Kamath today warned and asked the industry to be patient for opportunities as the economy will start recovering in the second half of 2009.

“There is pain for another two quarters but I see an environment full of opportunity thereafter,” Kamath, who is all President of Confederation of Indian Industry said.

“The most painful things for corporate India in the next few months would be to take profit impact due to loss of inventory valuation,” he said and explained that this was a fallout of the commodities, steel, and oil prices more than halving in a matter of weeks when economic meltdown set in. The warning coincides with a 22 per cent dip in advance tax in December and announcement of October-December quarter financial results this month.

 

The second major issue for the corporate world would be management of long term finance in the face of a sliding interest rate regime that has started now, with inflation dropping sharply in the last few weeks, he said. In this context, Kamath offered a word caution to the industry on the global acquisition front.

Asked if India Inc should forget global takeovers, particularly in the backdrop of reported funding problems faced by corporate giant like Tata on Corus and Jaguar and Land Rover, Kamath said: “I think India Inc should use the time to basically to do detailing and other work on project they are looking at.”

Elaborating, Kamath said, “Their appetite for acquisition, I don’t think needs to be calibrated, but their funding as option certainly would need to be calibrated... I will not talk of Tatas per se... I think what is happening to any Indian corporate today which want to borrow dollars in the global market. The sad fact is dollars are not available to anybody. Global banks are not lending to one another. Everybody is content to hold its own government securities and that is the challenge for corporate India, he said.

When asked what India Inc does not want to see in 2009, Kamath said that corporate India does not want to see a slowdown as “it will throw all plans out of gear. So, they don’t want that”.

Noting that small and medium enterprises are under pressure, Kamath said, “I would still think that SME sector would be the one under the most pressure. And whatever we can do to give them a helping hand through regulatory policy we should try and do that.” He suggested that the NPA recognition norms for the sector could be relaxed by extending the number of days for counting default from exiting 90 days to 180 days.

“I think certainly something need to be done for this sector,” Kamath said. The government and the Reserve Bank of India are trying to neutralise the impact of global slowdown on the country through fiscal and monetary measures, as the industrial output moved into negative growth zone after a gap of 15 years.

The government is finalising a second stimulus package to prop up economic growth.