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Fiscal lesson: Money scarce, use it wisely

By New Delhi/Mumbai
March 31, 2009 19:56 IST
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Corporates would need to focus on their core businesses in the new financial year and consolidate their resources after an agressive approach shown in 2008-09, experts feel.

The aggression shown by corporate houses till not a long ago has given way for consolidation in the backdrop of current economic downturn and the companies in the next fiscal, beginning tomorrow, would need to focus on growing their core businesses and conserving the resources, global consultancy firm PricewaterhouseCoopers executive director Sanjeev Krishnan told PTI.

"Money is a scarce commodity. India Inc realised it the hardest way in the last year, which was the year of global slowdown," Kejriwal Research and Investment Services' Arun Kejriwal said.

"The benefits of cost cutting measures undertaken by the corporate houses in FY09 would start bearing fruit after three months. They should now adopt a wait and watch policy to see the benefits of cost cutting in the June quarter," he added.

Global consultancy firm KPMG India CEO Russell Parera told PTI that "consolidation involving weaker balance sheets and migrating to stronger balance sheets is likely across many sectors.

"Given a lower cost base, companies would need to make sure that they tap any potential opportunities in the domestic market that might come their way post elections and monsoon."

Research firm D&B chief operating officer Kaushal Sampat said, "FY10 is going to be a challenging year for Indian Inc; A large part of the aggressive expansion that we have seen in the past couple of years will be tempered down, businesses will need to focus on risk management. Apart from this, companies need to follow stringent cost management as well."

"Concentration on core businesses is a must as this is the time when you concentrate on your strengths and extract maximum value out of them," PwC's Krishnan noted.

Asked if it is the time for India Inc for lying low and prepare for the next uptrend, Krishnan said, "Concentration on reducing costs is going to be the foremost objective of India Inc, but lying low would definitely be not on their agenda.

"On an opportunistic basis, there is still a lot of appetite for assets globally not just from a cost synergy perspective but also from a customer addition perspective as Indian corporates feel that this is a good time to increase size and add global clients; the cheaper valuations across the globe are a boon too," he said.

However, the key challenge would be availability of finance and their own assessment of how long the recessionary trends would last, as these would determine their level of aggression in the marketplace.

Kejriwal, however, warned that the companies should now control their overseas expansion spree and some of the overseas investment decisions were already bleeding.

"It would have been a prudent decision if they expanded within the country. Whatever India Inc plans to acquire in FY'10 should be based on due diligence," he said.

Rather, the companies should look at reaping the benefits of the past acquisitions and keep a low profile in terms of M&A deals in FY'10. "They should focus on optimising capacity utilisation of the acquisitions already made," he said.

"These tough times are a good time to concentrate on the 'fortune at the bottom of the pyramid' and now is the time when sunrise sectors like food and agriculture would  boom, as you might not go in for the new car or the holiday but you would still get those groceries.

"Likewise healthcare, education and logistics and infrastructure are key focus segments," the PwC official noted.

Speaking about the market expectations, Kejriwal said that share prices had already dipped to low levels and India Inc should now concentrate on confidence creation measures among its investors.

"They should show the investors in their results that the benefits of its several measures of the last fiscal is showing results in their first and second quarter results. If they can built investor confidence, then only then only fresh buying can be seen," he warned.

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