INDIA SCAM OPPORTUNITIES

Scandals give birth to opportunities and shows avenues of growth with development. Sounds funny, but that the bottom line that the top line . In the past we have seen how the Indian corporate sectors have been rattled by various scams which hit the market from time to time. Every time we find scams every time we rise for better control irrespective of internal or external governance. We throw seminars on strategies on how to strengthen the corporate governance and bring new areas under the vigilance. Every time we also pop up with new strategies to challenge the existing code of corporate governance and come out with a new dimension of scams.

Scam: NPA.

The recent case related to loans scams has rattled the Indian political and bureaucratic more as compared to stock market correction in the past couple of sessions.NPA is a nightmare chasing not only in the night but also in the day. When business growth happens at an electrifying speed and new business opportunities opens up and materialize within a short span of time NPA are bound to increase.NPA control mechanisms have been designed and modified from time to time but if Indian follows the rules of the US mortgage collapse then imagine the strength of the NPA guidelines. One can design guidelines for the paper work but what guidelines will be created for Greedy mind. The greedy mind can change or originate from anywhere but no regulation can be created to control the greed.

Banks have been roaring that we are having less exposure to the real estate sector or to any such scam related sector. The NPA are under control is the phrase being heard mostly now. I am sorry to say and bring you all the fact the type of involvement the Banks and Indian financial system have with the real estate and such sectors where NPA will breed like Bacteria.

• The exposure of most of the banks to the sector rose to 11-24% of total advances at the end of March compared with 3-7% at the end of fiscal 2006, according to data compiled from the annual reports of banks.

• The exposure of new private sector banks in these sectors was as high as 31% of their total loan book in fiscal 2010 while that of public sector banks was 16%. The exposure of foreign banks was as high as 32.4%

• Real estate advances comprised 22.44% of the bank’s total as of 31 March.

• SBI had the largest exposure to real estate at Rs.87,125.16 core as of 31 March, followed by ICICI Bank’s Rs.63,870.73 core.

Blessing of Squeeze.

From the above data its well clears that how banks and Indian financial system have stretched its hands towards the most controversial sector of India. Now before you start cursing try to figure out that when banks have posted growth numbers of loan disbursement and other growth numbers how many times your stock price jumped up and you made your wallet swell like a dead cat. We made money on that day on the basis of the NPA. Banks and Indian financial system made loan easily available to the sector and often without proper documentation or made unethical restructuring of loans.

After this scam we will find liquidity squeeze and other preventive measures. One of the blessing of this squeeze will be Inflation will come down like a rolling ball to lower levels and “AM ADMI" will get space to breathe will low food prices etc. We will should be ready to wittiness very low inflation numbers coming out within a months’ time from now. Yes the ripple effect of the liquidity squeeze will hitting hard on the Indian corporate as cost of borrowing will pick up but one should understand that if a country dreams to have a GDP growth of 10% then one should build that growth on strong fundamental grounds. If you follow the pattern of growth model designed by the Subprime leaders India will be worst than US recession dark nights. One can achieve the 10% GDP growth following the path of US subprime, but after that it might take another 30 years to get that GDP climb to the previous levels. Stop exploiting of resources and misuse of liquidity since at the end the ball will come back to the place of its origin.

Touching the sky.

If we make quick look towards the India real estate sector we will find that in the past 1 years time frame the sector was too much overvalued and that valuation momentum was kept on high with the supply of the credit provide under the scam.

 The rise of the middle class (500 million), Non Resident Indians investing in Indian realty, Foreign Direct Investment entering the market, expansion of MNCs and Indian multinationals, proliferation of educational institutions, growth of IT, BPO, food processing & health care - all these are the factors responsible for the growth of Indian realty.

 Chandigarh, Gurgaon, Vizag, Coimbatore, Kochi, Jaipur, Nagpur are some Tier II cities witnessing unprecedented boom.

 Indian realty is growing at 30%, particularly in Tier II and Tier III cities. The $15 billion realty market is expected to reach $ 90 billion within the next 8 years.

 Recently their have been reverse affects of the higher property valuations and prices.

 Sales of residential properties in Mumbai have fallen by 40% since the peak in May 2009, says Edelweiss Securities, mainly due to higher prices which have increased by 15%-20% over the past six months.

 The real-estate industry in Hyderabad is replicating the same scenario of lackluster sales as of the Mumbai market during the fourth quarter ended in March 2010.

 The most astonishing fact is there is no movement in Ressex (Real-Estate Sensitivity Index) sales index in Q4FY09-10 compared to Q3FY09-10.

 We find stagnation in Mumbai real-estate prices to flagging demand from consumers due to the abnormal rates that were being charged by builders. Prices are not allowed to drop.

 Builders are not selling property at the prices which they are quoting. They are selling at discounted prices behind closed doors. Also, the funds the builders have been able to generate from multiple sources have enabled them to hold prices high, which is (again not) sustainable.

 The real-estate market experienced an alarming rise of about 30% in certain Mumbai micro-markets during the first quarter of this year, resulting in a decline in sales by 50%-60%.

 Real-estate market focused more on higher valuations and raising funds through the capital market than on end-user sales.

 Buyers have already started much before not to go for buy of property and increase the greedy appetite of Builders.

Scam Alert

One of the biggest hit is going to hot the inventory sector. Building up of inventory has resulted to consumption and pick up of demand in the steel, cement and other raw materials. We will find drop out in demand from the sudden catastrophic levels to zero. Indian real estate sector needs very tights hands to control the unhealthy prodigal type movements and growth.

What we will find in the Indian economy in the coming days is that again set of new guidelines and principles will come up to strengthen the Indian corporate sector which will at another point of time will fail. The problem is that no Bullet proof jacket can be made for the protecting corporate scams. One must understand the symptoms and take adequate measures. One needs guidelines to understand the symptoms. In the next series of corporate magazines and corporate Bodies meet we will find discussion on strengthening rules of the corporate sector. Make guidelines to understand the symptoms and not cure of the disease once it happens.