Yet another crisis hits world Yet another crisis hits world marketsmarkets

• The deadly ‘Recession’ fears The deadly ‘Recession’ fears are far from over.are far from over.

• Euro crisis hit them like a Euro crisis hit them like a thunder boltthunder bolt

• The stocks across the world are The stocks across the world are melting yet again.melting yet again.

• the Indian IT sector, like many the Indian IT sector, like many other sectors, due to European other sectors, due to European crisis lead to cancellations of crisis lead to cancellations of many big orders.many big orders.

How it all startedHow it all started

• originated from the ancient civilisation land originated from the ancient civilisation land Greece Greece

• The European countries reacted rather slowly to The European countries reacted rather slowly to avert thisavert this

• Markets reacted to the largest bailout package Markets reacted to the largest bailout package announced by the European nations to prevent announced by the European nations to prevent the bankruptcy of Greece.the bankruptcy of Greece.

Living beyond our means = European Living beyond our means = European crisis crisis

• Greece which was epicenter of the sovereign default malaise as Greece which was epicenter of the sovereign default malaise as countrycountrywas known to live beyond its means.was known to live beyond its means.

• In early 2010 economic activities of the PIGS have come under In early 2010 economic activities of the PIGS have come under increased scrutiny from the international invesment community, with increased scrutiny from the international invesment community, with the threat of Sovereign default´ lurking around the corner lead to the threat of Sovereign default´ lurking around the corner lead to European crisis European crisis

• With onslaught of the recession and subsequent introduction ofWith onslaught of the recession and subsequent introduction ofvarious financial stimulus packages, the government expenditure like various financial stimulus packages, the government expenditure like public job creation,pensions, social benefits etc ..on various countries public job creation,pensions, social benefits etc ..on various countries took on gargantuan proportions to support these packages.took on gargantuan proportions to support these packages.

• To support these packages government was forced to borrow heavilyTo support these packages government was forced to borrow heavilyconsequently generating high fiscal deficicts.Most countries had consequently generating high fiscal deficicts.Most countries had manageable fiscal deficit, the government of PIGS nations mopped up manageable fiscal deficit, the government of PIGS nations mopped up a huge debt bill. a huge debt bill.

Debt Skelton of PIGS

Europe's Sovereign Debt Crisis and its Europe's Sovereign Debt Crisis and its international impact international impact

• A deepening crisis of confidence in sovereign debt within the euro A deepening crisis of confidence in sovereign debt within the euro zone :-investors to rethinkzone :-investors to rethink

• The crisis of sovereign default by Greece :-as a European concern The crisis of sovereign default by Greece :-as a European concern for a few monthsfor a few monthssince last quarter of 2009. since last quarter of 2009.

• financial market round the world had pressurized for more relief financial market round the world had pressurized for more relief packages, packages,

• it was actually about the EURO , the EU economy , as well as the it was actually about the EURO , the EU economy , as well as the US.Moreover, with the IMF .US.Moreover, with the IMF .

• key donors include countries like China and India.key donors include countries like China and India.• India also played a major role in mitigation package to Europe.India also played a major role in mitigation package to Europe.• The Greek crisis threatens to bring down the entire 16-nation The Greek crisis threatens to bring down the entire 16-nation

monetary union. monetary union. • The biggest casualty over the last week from the eurozone debt The biggest casualty over the last week from the eurozone debt

crisis has been the euro, which was down 0.1 per cent on the day crisis has been the euro, which was down 0.1 per cent on the day at $1.2334. Earlier it had fallen to $1.2237, its lowest level since at $1.2334. Earlier it had fallen to $1.2237, its lowest level since April 2006 and down from $1.51 late last year. April 2006 and down from $1.51 late last year.

impact on India:the linkagesimpact on India:the linkages

• crisis in an economy impacts other economies via three crisis in an economy impacts other economies via three channels channels

• Trade Channel:- Trade Channel:- it impacts the affected country’s trading it impacts the affected country’s trading partners too. partners too.

• exports/imports of its trading partnersexports/imports of its trading partners• Financial Channel:-Financial Channel:- Apart from movement in financial  Apart from movement in financial

markets, three kinds of financial flows could impact Indian markets, three kinds of financial flows could impact Indian financial markets:financial markets:

• Foreign Direct Investment:Foreign Direct Investment:• Foreign Institutional Investment Foreign Institutional Investment • External Commercial BorrowingsExternal Commercial Borrowings• Remittances and NRI depositsRemittances and NRI deposits

• Confidence channel:- Confidence channel:- This channel shows confidence declines This channel shows confidence declines in business and households seeing the global uncertainty. in business and households seeing the global uncertainty.

integration of India with global integration of India with global economyeconomy

• The business and trade cycle of India has started to follow The business and trade cycle of India has started to follow the cycles of advanced economies.the cycles of advanced economies.

• With increased global integration-greater influence of global With increased global integration-greater influence of global business cycles.business cycles.

• The correlation between the cyclical component of the IIP of The correlation between the cyclical component of the IIP of the advanced economies and India has risen to 0.50 during the advanced economies and India has risen to 0.50 during the period 1991-2009 from 0.20 in during the period 1971-the period 1991-2009 from 0.20 in during the period 1971-19901990

Impact on Indian economy:Impact on Indian economy:

• What impact the Euro crisis is likely have on Indian economy, since the epicenter What impact the Euro crisis is likely have on Indian economy, since the epicenter of the crisis is far away in Greek capital Athens of the crisis is far away in Greek capital Athens

• Perhaps not be any direct impact on the Indian economy from the European Perhaps not be any direct impact on the Indian economy from the European crisis. However, with the increasing integration of the world economies, would crisis. However, with the increasing integration of the world economies, would have its impact on the Indian economy as well. have its impact on the Indian economy as well.

• Despite the assurances, the markets are reacting sharply, showing huge Despite the assurances, the markets are reacting sharply, showing huge decline. decline. 

• The investments might not increase seeing the global uncertainty. Investment The investments might not increase seeing the global uncertainty. Investment was a key driver in Indian 9% growth period (2003-08). was a key driver in Indian 9% growth period (2003-08).

• IIP could again decline as it did post-September 2008 crisis.IIP could again decline as it did post-September 2008 crisis.• Credit growth could decline both because of banks becoming uncertain and Credit growth could decline both because of banks becoming uncertain and

business not demanding creditbusiness not demanding credit

• Foreign capital inflows could reverse to an outflow position.. The expectations of Foreign capital inflows could reverse to an outflow position.. The expectations of BSE Sensex reaching soon to 21,000 levels are being revised downwards. BSE Sensex reaching soon to 21,000 levels are being revised downwards.

• The volatility is again increasing The volatility is again increasing

Impact on exportsImpact on exports • The European Union -21% of India's total export The European Union -21% of India's total export • Exports to Greece, Spain and Portugal, including Exports to Greece, Spain and Portugal, including

Italy, is only 4%.Italy, is only 4%.• Indian finance minister rightly said that export to Indian finance minister rightly said that export to

PIGS are marginally low and will not have any PIGS are marginally low and will not have any impact on it ..impact on it ..

• India export mainly textiles, pharmacy products, India export mainly textiles, pharmacy products, Gems etc to European countries:-not much affectedGems etc to European countries:-not much affected

• Now, the Now, the Greek crisis has ballooned into a major has ballooned into a major European crisis. the currency value of euro has European crisis. the currency value of euro has depreciated by 5% against the rupee since April.depreciated by 5% against the rupee since April.

• Euro which was quoting at around Rs.67 Euro which was quoting at around Rs.67 before crisis is way below at Rs.55.92 before crisis is way below at Rs.55.92 currently. currently.

• The sharp depreciation of the euro has The sharp depreciation of the euro has concerned exporters as that could ultimately concerned exporters as that could ultimately have cash flow impact on the remittances have cash flow impact on the remittances

• Economies of EU already introduced cut in spending. Economies of EU already introduced cut in spending. Such spending cuts could lead to postponement or Such spending cuts could lead to postponement or even cancellation of orders for the Indian exporterseven cancellation of orders for the Indian exporters

Impact on exportImpact on export

• Export markets could also decline by increasing Export markets could also decline by increasing volatility.volatility.

• some of the apparel exporters have started taking some of the apparel exporters have started taking corrective measures to tackle the consequences of corrective measures to tackle the consequences of fall in demand and fluctuation in currency on account fall in demand and fluctuation in currency on account of re-emergence of global risk aversion, by opening of re-emergence of global risk aversion, by opening stores in the domestic markets and ruling out the stores in the domestic markets and ruling out the effects of currency variations and related hedging effects of currency variations and related hedging problems.problems.

• The export products likely to be affected could be in The export products likely to be affected could be in the spaces of engineering, readymade garments, yarn the spaces of engineering, readymade garments, yarn chemicals, oil seeds, electrical goods and leather.chemicals, oil seeds, electrical goods and leather.

Increase in foreign fund Increase in foreign fund

inflowsinflows • International investors lost trust in world markets because International investors lost trust in world markets because

of series of crisis in US and Europe.of series of crisis in US and Europe. • But a majority of FII and other individual investors choose But a majority of FII and other individual investors choose

Indian markets to invest as showed its stability in their Indian markets to invest as showed its stability in their economy.economy.

• There was net inflow of foreign institutional funds into the There was net inflow of foreign institutional funds into the domestic capital markets since the start of 2010 till April-domestic capital markets since the start of 2010 till April-end, - Rs 54,606 crore end, - Rs 54,606 crore

• the stock market barometer Sensex rose 93.9 points in the the stock market barometer Sensex rose 93.9 points in the four months to close at 17,558.71 on April 30four months to close at 17,558.71 on April 30

Impact on ITImpact on IT

A gradual slowdown in the European market evidently affected revenue generation of the major IT companies of India.

Many linked the downsizing of companies and decline in the workforce in the IT companies as a result .

The economic turmoil resulted in a recession in the IT companies.

They are taking measures to cut down cost and also reducing their workforce. According to the According to the NASSCOM estimates, Indian IT , Indian IT services and BPO companies services and BPO companies earned around 30% of their earned around 30% of their total export revenues of $50 total export revenues of $50 billion from Europe.billion from Europe. India’s top India’s top three three IT companies TCS, Infosys and TCS, Infosys and Wipro earn anywhere between 23 to Wipro earn anywhere between 23 to 26% of their total revenues from 26% of their total revenues from Europe. Tech Mahindra is worst Europe. Tech Mahindra is worst placed with European exposure to placed with European exposure to the extent of 59% of its revenuesthe extent of 59% of its revenues

BPO INDUSTRY

The outsourcing industry- is one of fastest growing business in India

economic slowdown and financial crisis in the global market may pose a threat

The present economic turmoil in the global market has send rippling effects to the Indian economic market as well.

Besides the KPOs and BPOs of India, small and medium sized companies - affected by the financial situation outside the country

QUESTIONS ?QUESTIONS ?

• Some questions arising in minds of global Some questions arising in minds of global investment community are: - investment community are: -

• 1. What should be the next course of action for 1. What should be the next course of action for the markets from here?the markets from here?

•2. Will the European crisis worsen even further?2. Will the European crisis worsen even further?

•3. Will Greece eventually default even after a 110 3. Will Greece eventually default even after a 110 billion euro bailout?billion euro bailout?

• 4. Will $1 trillion European rescue package stop 4. Will $1 trillion European rescue package stop the ravage of the contagion of the PIIGs nationthe ravage of the contagion of the PIIGs nation

Why is India an Out-Why is India an Out-performer? performer? • Indian economy is far less dependent on exports to Europe.Indian economy is far less dependent on exports to Europe.• Indian IT companies have a lower exposure to European Indian IT companies have a lower exposure to European

clients. only4% of total exports exposure to debt-stuck clients. only4% of total exports exposure to debt-stuck economies such as Greece, Spain, Italy and Portugaleconomies such as Greece, Spain, Italy and Portugal

• India¶s IIP data has registered a growth of 5.1% compared India¶s IIP data has registered a growth of 5.1% compared

to 3.7% witnessed during April 2009. to 3.7% witnessed during April 2009.

• Thus, there are various parameters on which Indian stock Thus, there are various parameters on which Indian stock markets have out-performed the global indices while going markets have out-performed the global indices while going passing through the turmoil phase of European crisis.passing through the turmoil phase of European crisis.

• Investors waiting on sidelines should use every dip from Investors waiting on sidelines should use every dip from here to create a portfolio for long-term durationhere to create a portfolio for long-term duration

India heated :how much?India heated :how much?

• Heavy losses suffered by major International Heavy losses suffered by major International BanksBanks

• India is facing heat on three grounds: India is facing heat on three grounds: • (1) Our Share Markets are falling everyday, (1) Our Share Markets are falling everyday, • (2) Rupee is weakening against dollars and(2) Rupee is weakening against dollars and• (3) Our banks are facing severe crash (3) Our banks are facing severe crash

crunch crunch • However, one positive point in favor of India However, one positive point in favor of India

is the fact that Indian Banks are more or is the fact that Indian Banks are more or less secured less secured

POSITIVE IMPACTS ON POSITIVE IMPACTS ON INDIAN ECONOMYINDIAN ECONOMY • Emergence of a new economyEmergence of a new economy• Expose of weaknesses in the economyExpose of weaknesses in the economy• Cost stabilization in real estate market.Cost stabilization in real estate market.

• Rationalization of Salary Structure in IT Rationalization of Salary Structure in IT IndustryIndustry

• Performance Appraisal is gaining groundPerformance Appraisal is gaining ground

• Best place for outsourcingBest place for outsourcing• Opportunities for International tradeOpportunities for International trade

European crisis: A double European crisis: A double whammy for Indian economywhammy for Indian economy

• There will be indirect effect As regards to India, There will be indirect effect As regards to India, • large foreign exchange reserveslarge foreign exchange reserves• The strengths are substantial and capital inflows The strengths are substantial and capital inflows

would eventually resume the normal course would eventually resume the normal course • The financial storm in Europe may not mean a The financial storm in Europe may not mean a

double-dip in the global economy yet, but it certainly double-dip in the global economy yet, but it certainly is a double whammy for Indian exports, which were is a double whammy for Indian exports, which were just beginning to heal from the injuries of 2008-09.just beginning to heal from the injuries of 2008-09.

• The question now is—will the government now have The question now is—will the government now have to extend a further helping hand to the exporters by to extend a further helping hand to the exporters by increasing the amount of the special package?increasing the amount of the special package?

OVERVIEWOVERVIEW• The above is a worse-case scenario and all The above is a worse-case scenario and all

would depend on the nature of European would depend on the nature of European crisis. crisis.

• We still do not know where the crisis is We still do not know where the crisis is headed.headed.

• Comparisons have been made on how the Comparisons have been made on how the crisis is similar to earlier US crisis but we crisis is similar to earlier US crisis but we have a far more complex problem here. have a far more complex problem here.

• Before the Recession hit the world Before the Recession hit the world economies in 2008, the Indian financial economies in 2008, the Indian financial experts insisted that it would not have any experts insisted that it would not have any impact on our country. And then the crisis impact on our country. And then the crisis hit and hit them hard with equity markets hit and hit them hard with equity markets declining from 21,000 levels to 8,000 levels. declining from 21,000 levels to 8,000 levels.

• As the Euro crisis started to show its impact, As the Euro crisis started to show its impact, the Indian experts once again laughed off the Indian experts once again laughed off when asked whether we could be impacted. when asked whether we could be impacted. And now we are seeing some strains on And now we are seeing some strains on equity markets, capital inflows etc. We may equity markets, capital inflows etc. We may not be impacted by the European crisis as not be impacted by the European crisis as much as previous crisis, but forgetting much as previous crisis, but forgetting history so quickly is a crime. Who knows history so quickly is a crime. Who knows what’s in store for you!what’s in store for you!

SOURCES:-SOURCES:-

• http://www.merinews.com/article/economic-meltdown-and-its-http://www.merinews.com/article/economic-meltdown-and-its-india-effect-deloitte-report/147727.shtmlindia-effect-deloitte-report/147727.shtml

• http://www.oppapers.com/subjects/impact-of-recession-on-indian-http://www.oppapers.com/subjects/impact-of-recession-on-indian-banks-page1.htmlbanks-page1.html

• http://mostlyeconomics.wordpress.com/2010/05/25/how-http://mostlyeconomics.wordpress.com/2010/05/25/how-european-crisis-could-impact-india-understanding-the-linkages/european-crisis-could-impact-india-understanding-the-linkages/

• http://www.krepublishers.com/02-Journals/JSS/JSS-21-0-000-09-http://www.krepublishers.com/02-Journals/JSS/JSS-21-0-000-09-Web/JSS-21-1-000-09-Abst-PDF/JSS-21-1-001-09-963-%20Prasad-Web/JSS-21-1-000-09-Abst-PDF/JSS-21-1-001-09-963-%20Prasad-A/JSS-21-1-001-09-963-%20Prasad-A-Tt.pdfA/JSS-21-1-001-09-963-%20Prasad-A-Tt.pdf

• http://www.acrobatplanet.com/non-fictions-ebook/ebook-global-http://www.acrobatplanet.com/non-fictions-ebook/ebook-global-economic-slowdown-and-its-impact-indian-it-industry.htmleconomic-slowdown-and-its-impact-indian-it-industry.html

• http://www.indianchild.com/economics/effects-of-recession.htmhttp://www.indianchild.com/economics/effects-of-recession.htm• http://www.fibre2fashion.com/industry-article/9/877/impact-of-http://www.fibre2fashion.com/industry-article/9/877/impact-of-

recession-in-american-economy-on-india1.asprecession-in-american-economy-on-india1.asp• http://www.mumbaispace.com/economics/impact-of-us-recession-http://www.mumbaispace.com/economics/impact-of-us-recession-

in-india.htmin-india.htm

THANK YOUTHANK YOU

• PRESENTED BY:-PRESENTED BY:-

DWIJESH TIWARI DWIJESH TIWARI

ASK? AND ASK? AND FEEDBACKFEEDBACK

??????????