Sumit Jethi Main 4

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A

Project Study ReportOn

Training Undertaking at

INDIA NIVESH SECURITIES PVT. LTD

IMPACT OF RECESSION ON INDIAN FINANCIAL MARKET

MBA

SUBMITTED BY SUPERVISED BYSUMIT JETHI Mrs. Minakshi NagarMBA (FM) LECTURER INID.2009MBA055 FINANCE MANAGEMENT

2009-2011

GECJ JHALAWAR


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Trust..We Earn It!
http://www.indianivesh.in/Home.aspx


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Table of Content

Acknowledgement

Preface

Executive summary

Objective of study

Introduction to industry

Introduction of organization

Introduction of Recession

Meaning of Recession

Causes of Recession

Reason of Financial Crisis

Recession Attribute

Market & Recession

Today v/s the 1980-82 Recession

Global Economic

Recession & Politics

Current crisis in US

Impact of an American Recession on India

Consequence of US Recession on India job market

Recession Impact on India

Response to the crises

Conclusion

References

Acknowledgement


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We know that the success is backed up by the helping hands of many people. The same is

the case y my project. Even my project wouldnt have been possible without the eminent

guidance of my teachers, suggestion of my fellows, and all those sources which I used for

preparation of this project.

I am thankful to Mrs. Aditi Dwiwedi, Lecture, GECJ, Jhalawar for giving me continuous help

and guidance for the project. I also want to give him thanks for his vital suggestions and

recommendations in preparation of the report.

I am grateful to Mr. Manoj Porwal for his valuable guidance and necessary encouragement

in this project.

I am in an extreme dilemma as to how I can appropriately acknowledge my deep gratitude

and thanks to Mr. Raj Saini for giving there valuable time and suggestion for this work.

Thanks are due to Dr .Sharad Maheshwari, (HOD) GEC Jhalawar and Mr. Hitesh Sharma. ,

Asst. Professor GEC Jhalawar for kind cooperation during the course of study and

motivating behaviour.

I express my heart full gratitude to family, who assisted and supported to accomplish my

goal. Above all, I am thankful to the almighty that blossomed me with his blessings for the

completion of the project.

SUMIT JETHI


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Preface

The purpose of the research project is carried out to study that how does recession affect

on Indian Financial market. The study reveals the fact of efficiency of Indian capital market

as compare to other country like America and Japan

The research study is carried out in an orderly manner and it is considered for

understanding well about mentioned areas i.e. History of Indian capital market, Primary &

Secondary market, Regulatory bodies, Stock Exchange, comparison with other country,

problems, Findings & Conclusion, Suggestions, and Bibliography will reveal the study result

carefully.

Hope that you will read a good topic on the research base.

Thanks.

Executive Summary


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Objective

Objective of the study


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To have an insight about the Indian Financial Market Recession.

To understand the reasons behind huge fluctuations in Indian Financial Market in

India.

To analyze the psychology of market players in Indian Financial market.

To know the role of Recession in Financial Market in India.

To study the role of cause of Recession.

To understand the effect and causes at Indian Financial Market.

To analyze risk management system in Indian Financial market.

To analyze how fluctuations are Financial calculated.

Chapter 1


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INTRODUCTION TO INDUSTRY

1.1 History of Capital Market in India

Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200

years ago. The earliest records of security dealings in India are meager and obscure. The

East India Company was the dominant institution in those days and business in its loan

securities used to be transacted towards the close of the eighteenth century.

By 1830's business on corporate stocks and shares in Bank and Cotton presses took place

in Bombay. Though the trading list was broader in 1839, there were only half a dozen

brokers recognized by banks and merchants during 1840 and 1850.The 1850's witnessed a

rapid development of commercial enterprise and brokerage business attracted many men

into the field and by 1860 the number of brokers increased into 60.In 1860-61 the American

Civil War broke out and cotton supply from United States of Europe was stopped; thus, the'Share Mania' in India begun. The number of brokers increased to about 200 to 250.

However, at the end of the American Civil War, in 1865, a disastrous slump began (for

example, Bank of Bombay Share which had touched Rs. 2850 could only be sold at Rs.

87).

At the end of the American Civil War, the brokers who thrived out of Civil War in 1874,

found a place in a street (now appropriately called as Dalal Street) where they would

conveniently assemble and transact business. In 1887, they formally established in

Bombay, the "Native Share and Stock Brokers' Association" (which is alternatively known

as The Stock Exchange "). In 1895, the Stock Exchange acquired a premise in the same

street and it was inaugurated in 1899. Thus, the Stock Exchange at Bombay was

consolidated.

1.2 Cities in Stock Market Operations


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Ahmedabad gained importance next to Bombay with respect to cotton textile industry. After

1880, many mills originated from Ahmedabad and rapidly forged ahead. As new mills were

floated, the need for a Stock Exchange at Ahmedabad was realised and in 1894 the

brokers formed "The Ahmedabad Share and Stock Brokers' Association".

What the cotton textile industry was to Bombay and Ahmedabad, the jute industry was to

Calcutta. Also tea and coal industries were the other major industrial groups in Calcutta.

After the Share Mania in 1861-65, in the 1870's there was a sharp boom in jute shares,

which was followed by a boom in tea shares in the 1880's and 1890's; and a coal boom

between 1904 and 1908. On June 1908, some leading brokers formed "The Calcutta Stock

Exchange Association".

In the beginning of the twentieth century, the industrial revolution was on the way in India

with the Swadeshi Movement; and with the inauguration of the Tata Iron and Steel

Company Limited in 1907, an important stage in industrial advancement under Indian

enterprise was reached.

Indian cotton and jute textiles, steel, sugar, paper and flour mills and all companies

generally enjoyed phenomenal prosperity, due to the First World War.

In 1920, the then demure city of Madras had the maiden thrill of a stock exchange

functioning in its midst, under the name and style of "The Madras Stock Exchange" with

100 members. However, when boom faded, the number of members stood reduced from

100 to 3, by 1923, and so it went out of existence.

In 1935, the stock market activity improved, especially in South India where there was a

rapid increase in the number of textile mills and many plantation companies were floated. In

1937, a stock exchange was once again organized in Madras - Madras Stock Exchange

Association (Pvt) Limited. (In 1957 the name was changed to Madras Stock Exchange

Limited).

Lahore Stock Exchange was formed in 1934 and it had a brief life. It was merged with the

Punjab Stock Exchange Limited, which was incorporated in 1936.

1.3 Indian Stock Exchanges - An Umbrella Growth


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The Second World War broke out in 1939. It gave a sharp boom which was followed by a

slump. But, in 1943, the situation changed radically, when India was fully mobilized as a

supply base.

On account of the restrictive controls on cotton, bullion, seeds and other commodities,

those dealing in them found in the stock market as the only outlet for their activities. They

were anxious to join the trade and their number was swelled by numerous others. Many

new associations were constituted for the purpose and Stock Exchanges in all parts of the

country were floated.

The Uttar Pradesh Stock Exchange Limited (1940), Nagpur Stock Exchange Limited (1940)

and Hyderabad Stock Exchange Limited (1944) were incorporated.

In Delhi two stock exchanges - Delhi Stock and Share Brokers' Association Limited and the

Delhi Stocks and Shares Exchange Limited - were floated and later in June 1947,

amalgamated into the Delhi Stock Exchange Association Limited.

1.4 Post-independence Scenario

Most of the exchanges suffered almost a total eclipse during depression. Lahore Exchangewas closed during partition of the country and later migrated to Delhi and merged with Delhi

Stock Exchange.Bangalore Stock Exchange Limited was registered in 1957 and recognized

in 1963.

Most of the other exchanges languished till 1957 when they applied to the Central

Government for recognition under the Securities Contracts (Regulation) Act, 1956. Only

Bombay, Calcutta, Madras, Ahmedabad, Delhi, Hyderabad and Indore, the well established

exchanges, were recognized under the Act. Some of the members of the other Associations

were required to be admitted by the recognized stock exchanges on a concessional basis,

but acting on the principle of unitary control, all these pseudo stock exchanges were

refused recognition by the Government of India and they thereupon ceased to function.

Thus, during early sixties there were eight recognized stock exchanges in India (mentioned

above). The number virtually remained unchanged, for nearly two decades. During eighties,

however, many stock exchanges were established: Cochin Stock Exchange (1980), UttarPradesh Stock Exchange Association Limited (at Kanpur, 1982), and Pune Stock Exchange


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Limited (1982), Ludhiana Stock Exchange Association Limited (1983), Gauhati Stock

Exchange Limited (1984), Kanara Stock Exchange Limited (at Mangalore, 1985), Magadh

Stock Exchange Association (at Patna, 1986), Jaipur Stock Exchange Limited (1989),

Bhubaneswar Stock Exchange Association Limited (1989), Saurashtra Kutch Stock

Exchange Limited (at Rajkot, 1989), Vadodara Stock Exchange Limited (at Baroda, 1990)

and recently established exchanges - Coimbatore and Meerut. Thus, at present, there are

totally twenty one recognized stock exchanges in India excluding the Over The Counter

Exchange of India Limited (OTCEI) and the National Stock Exchange of India Limited

(NSEIL).

Chapter 2


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INTRODUCTION TO ORGANIZATION

India Nivesh Limited (Parent Company)

India Nivesh Limited (INL) is a Public Limited Company originally incorporated on May 25,

1929, listed on Bombay Stock Exchange Limited (BSE). The company has acquired Debts /

Assets of sick companies and settled with Financial Institutions and Promoters and

acquired the assets of these companies. Basically, INL is into the business of settlement /

acquisition of stressed assets. INL is also registered with Reserve Bank of India (RBI) as a

Non Banking Financial Company (NBFC). The Company is a professionally managed

Company and has a very dedicated and experienced team of professionals who are

competent to identify value assets. In a short span of time INL has been able to create a

niche for itself and has already completed 10 to 15 acquisitions of Debt Assets IndiaNivesh

is a fast growing professionally managed financial services group with presence across all

major cities and metros in India. Our core businesses includes Stressed AssetManagement, Investment Banking, Securities Broking, Commodities & Currency Broking,

Insurance Broking, Depository Services, Wealth Management and various other financial

products. IndiaNivesh is a pioneer in providing customized services to Government

Institutions, Public Finance Institutions, Foreign Institutional Investors, Domestic Institutions

(Mutual Funds, Insurance Companies), HNIs, Corporates and SMEenterprises.

We serve as a bridge for creating wealth and preserving it.IndiaNivesh Stands for Investments in Ind In our Name the (I) resembles an India flying

high with its wings spread all over the world ia. The three red curves on the left wing

represent Trust, Commitment and Results

Trust - The trust our clients have on us

Commitment - The Commitment we have towards our clients

Results - The results which we deliver for our clients


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At India Nivesh, what matters the most is our ability to earn trust and respect of our clients.

We make a firm commitment to all our work enabling us to deliver the results as desired by

our clients And we earn our clients trust through our commitment and performance and we

rightly claim Trust..we earn it

IndiaNivesh is a professionally managed organisation with a group of eminent professionals

at the helm of its affairs

IndiaNivesh Commodities Private Limited

INCPL is the commodities trading arm of India Nivesh group and it was incorporated in the

year 2005 and is a trading cum clearing member of Multi Commodities Exchange and

National Commodities and Derivatives Exchange of India. INCPL has been providing

commodities trading facilities to both Corporate and retail clients since 2005.

IndiaNivesh Insurance Brokers Private Limited

IndiaNivesh Insurance Brokers Private Limited (INIBPL) is the Insurance broking arm of

IndiaNivesh group. It is registered with Insurance Regulatory and Development Authority

(IRDA) and basically focuses on General Insurance as well as Life Insurance.

IndiaNivesh Management Consultants Pvt Ltd

INMCPL is the investment banking arm of IndiaNivesh Group offering consultancy services

that include mergers, acquisitions and divestitures, capital raising and recapitalization. It

offers expert counseling services in business advisory, transaction support, banking and

financial services. The ambit of services includes management of capital raising activities

through debt or equity from private/public placement and banks/financial institutes

Luminaire Technologies Limited

Luminaire Technologies Limited which is listed on the Bombay Stock Exchange Limited is a

subsidiary of INL and is into the business of software and technology development. We

intend to expand the scope of activities in the software technology space and also to enter

into new business fields such as media and entertainment.


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IndiaNivesh TV Networks Pvt Ltd

IndiaNivesh Group has muted the idea of a property channel which will be the first of its

kind in India. INTVPL has been set up in Singapore as a wholly owned subsidiary of

Luminaire Technologies Limited (Subsidiary of IndiaNivesh Limited) for the purpose of

setting up the infrastructure and the property channel will be launched in Singapore, the

Middle East and India.

OVERVIEW

INSPL is registered as a Stock Broker with SEBI and has memberships of Bombay

Stock Exchange (BSE) and National Stock Exchange (NSE) for both Cash and

Derivatives segments.

INSPL is a registered Depository Participant with CDSL and NSDL.

INSPL is also into Paper Distribution - Primary Market and New Fund Offerings

(NFO).

Portfolio Management Services (PMS).

Private Placement of Equity and Debts.

PROMOTERS

Mr. Anil Bafna

Mr. Bafna has rich experience in the areas of Management Consultancy, Investment

Banking, Mergers and Acquisition, Project Financing, Taxation, Auditing and Corporate Law

matters.

In his career spanning more than two and a half decades, Mr. Bafna has made pioneering

contributions to the development of many Small and Medium enterprises and has also

advised several corporates on their strategic and financial needs, especially, capital raising

and mergers & acquisitions, and has also handled foreign assignments. He has also been

appointed as a National Expert on Marble & Granite by United Nation Industrial


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Development Organization (UNIDO), Vienna, Austria. Mr. Bafna brings with him wealth of

experience in dealing with Banks and Financial Institutions and has a deep-rooted network

in the Indian banking sector.

Mr. Bafna has played a vital role in establishing and managing the Stressed Asset portfolio

of the group besides being a strategic decision maker. Mr. Bafna is a Merit holder

Chartered Accountant and is a senior partner in A. Bafna & Co., Chartered Accountants.

Mr. Dinesh Nuwal

Mr. Dinesh Nuwal is a qualified Chartered Accountant. He is having more than 18 years ofrich experience in Finance, Capital & Commodity Markets, Investment Management,

Project Financing, Compliance, Corporate Affairs etc

Mr. Rajesh Nuwal

Mr. Rajesh Nuwal an avant-grade visionary, is the group Managing Director. He is a

qualified Chartered Accountant and Cost and Works Accountant. Mr. Rajesh Nuwal is a

multi faceted businessman having more than 15 years of experience with a wide knowledgein the field of Capital & Commodity Markets, Stressed Asset Management, Investment

Management, Merchant Banking, Real Estates, Project Financing, Compliance, Corporate

Affairs etc. As an effective leader and motivator and having a strong business acumen

along with respect for moral values, he has taken the group to greater heights.

Mr. Hemant Panpalia

Mr. Hemant Panpalia is a fellow member of the Institute of Chartered Accountant of India

and possesses varied experience of more than 11 years in the fields of Finance, Investment

Banking, Primary and Secondary Markets, Merchant Banking, Project Financing and

Consultancy, Corporate Affairs etc. Mr. Panpalia is also engaged as a financial consultant

to the Bajaj group.

Mr. Girish Bhagat

Mr. Girish Bhagat has over thirty years of experience in areas of Capital Markets,

Investment Banking, Alternate Investments, Equities Broking, IT Services, and more


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recently in the development of Indias Urban Infrastructure. During his career he has led

some very successful pioneering start-ups, significantly contributed to capital inflows into

India, structured cross border joint ventures and done transactions in many countries. In the

past, he has held leadership positions in HSBC, HDFC Securities, IIT InvesTrust, Citibank

and with the Unit Trust of India. Mr. Bhagat is an Independent Director of IndiaNivesh

Liimited.

Mr. Deepak Patwari

Mr. Patwari is having more than 18 years of experience in the fields of Capital & Commodity

Markets, Investment Management, Merchant Banking, Project Financing, Compliance,

Corporate Affairs etc. Mr. Patwari is a Science graduate and is on the board of IndiaNivesh

Management Consultants Private Limited.

MANAGEMENT TEAM

Mr. Sunil Avasthi

Mr. Sunil Avasthi has a vast and rich experience of 35 years in the field of Insurance.

He is the chief mentor and brain behind the company. He was earlier working with

The Oriental Insurance Co. Ltd. and looks after Corporate Business.

Mr. Bharat Kotak

Mr. Kotak is a qualified Chartered accountant having a vast experience of more than 20

years in of Capital Markets, Investment Management, Merchant Banking, Project Financing,

Compliance, Corporate Affairs etc. He is a former designated director in an IIT group

company.

Sumit Bohra

Mr. Sumit Bohra is a qualified Chartered Accountant and CEO on the Insurance Broking

Arm. He has been handling the Insurance Broking Company from last 5 years and is

looking into Underwriting, Portfolio Management and Claims. He has good experience in

field of Audit and Taxation

Mr. Ajoy Modi


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He is a qualified chartered accountant, Cost and Works accountant and possesses more

than 14 years of experience in the fields of Technical Equity Research. He is handling the

entire technical research analyst team.

Mr. Nirmal Pareek

Mr. Pareek is a designated director and principal officer of the company. He is having more

than 10 years of varied experience in capital and financial markets. He is primarily

responsible for all front office operations

Mr. Nitesh Kabra

Mr. Kabra is a designated director of the company having more than 8 years of experiencein the field of Capital Markets, Investment Management, Compliance related work,

Corporate Affairs etc. He handles the entire back office operations for the company.

Mr. Govind Saboo

Mr. Saboo is a qualified chartered accountant and possesses more than 6 years experience

in the fields of Equity Research. He is handling the entire technical and fundamental

research analyst team. Prior to joining us he has worked as a business analyst withGoldman Sachs.

Mr. Jinesh Doshi

Mr. Doshi a qualified company secretary and a law graduate is the group company

secretary having more than 5 years of vast experience of compliance with various

regulatory authorities, such as SEBI, NSE, BSE, ROC, RBI, Company Law Board, MCX &

NCDEX


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OUR FORT

One Stop Shop:

Provider of comprehensive broking and wealth management services under one

roof.

Strong Research Base:

Fundamentals based Primary and Secondary Market research services.

Sound Financials:

The Net worth of INSPL as on 31st March 2008 stands at more than Rupees 26.50

Crores.

Good Governance:

Adherence to the rules and regulations laid down by regulatory authorities and

functioning as per the bye-laws of the respective governing authorities.

Client Redressal:

Zero tolerance for client grievances, and minimum TAT

Vision

Our Vision is to emerge as a dynamic, customer - centric, and progressive financial group

in the country with pan India presence, sharply focused on business growth and profitability,with due emphasis on risk management in an environment of professionalism, trust and

transparency, observing the highest standards of corporate governance and corporate

social responsibilities, meeting the expectations of all our stakeholders as well as the

aspirations of our employees.

Essentially, Combining integrity with pursuit of excellence to ensure prosperity to all

stakeholders on a continuous basis is going to be the core philosophy and driving force for

the group.


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Our Mission

One of our Key endeavor is to become one of the top ten financial powerhouses in India

within the coming 5-6 years by constantly exploring future business models and offering the

entire bouquet of financial services to our clients under one single roof.

We serve as a bridge for creating wealth and preserving it.

Integrity - Our Group, through the actions of our partners and associates, will reflect

the highest ethical standards at all times. Trust is an essential element of our

industry. Our clients and collaborating partners and associates can expect ourdealings with them to be honest and forthright - we will not waver in our commitment

to this principal.

Respect - We will always treat each other and those with whom we come in contact

with dignity and respect. We are a global firm and embrace diversity of culture and

religion in our workplace. We are open to the thoughts and opinions of others

irrespective of race, creed or ethnic origin, and relish the creativity that comes from

collaborating with those who may view things from a different perspective.

Leadership - Every associate and partner of IndiaNivesh is empowered as a leader

both in our workplace and the communities where we work. We are confident of the

firm's support as we strive to implement innovation, efficiency and growth.

IndiaNivesh supports community service activities, recognizing the debt owed to a

society that enables our group to flourish.

Excellence - We are a service organization. Our worth is measured daily by our

clients and our collaborating partners, associates, customers etc. We will

consistently provide service at a level that exceeds expectations through our focus

on quality.

Teamwork - We are loyal to our clients, our collaborators, our firm and each other. We will

work together and are accountable to each other to provide the absolute best results for our

clients. We are rewarded for our collaborative efforts without regard for individual credit. We

recognize that we are of varying talents and abilities; therefore, a cooperative effort is the

best effort for


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INL DETAILS

India Nivesh Limited provides various financial services in India. The company offers asset

management, securities broking, commodities broking, insurance broking, depository,

investment banking, and wealth management services. It also provides other financial

products, including private placements of debt or equity. In addition, the company, through

its subsidiary, Luminaire Technologies Limited, engages in the business of software and

technology development. Further, IndiaNivesh Limited, through its other subsidiary,

Krishnadeep Marketing Services Private Limited, involves in strategic investment for the

revival and rehabilitation of sick industrial undertakings and real estate business. The

company was formerly known as Sanyei Corporation Limited and changed its name to

IndiaNivesh Limited in September 2006. IndiaNivesh Limited was incorporated in 1929 and

is based in Mumbai, India

KEY DEVELOPMENTS FOR INDIANIVESH LTD (INL)

IndiaNivesh Ltd. expected to report Q1 2011 results on August 13, 2010. This event

was calculated by Capital IQ (Created on August 7, 2010).

08/7/2010

IndiaNivesh Ltd. expected to report Q1 2011 results on August 13, 2010. This event was calculated

by Capital IQ (Created on August 7, 2010).

IndiaNivesh Ltd. expected to report Fiscal Year 2011 results on May 30, 2011. This

event was calculated by Capital IQ (Created on June 27, 2010).

06/27/2010

IndiaNivesh Ltd. expected to report Fiscal Year 2011 results on May 30, 2011. This event was

calculated by Capital IQ (Created on June 27, 2010).

IndiaNivesh Ltd. Recommends Final Dividend

06/1/2010


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IndiaNivesh Ltd. has informed that the Board of Directors of the company at its meeting held on

May 31, 2010, inter alia, has recommended a final dividend of INR 1 (10%) per equity share of INR

10 each for the fiscal 2010 subject to approval of members in Annual General Meeting of the

company.

Technology

India Nivesh state of the art facility has all it takes to support the zealous future growth

plans and to maintain global quality standards. We have installed the latest Front office and

Back office software which ensures hassle free continuous services.

i] Hardware: Use of high end HP and IBM servers for front office and back office

software system, back up devices, workstations.

ii] Software: Use of ODIN software for front office operations and Lidha Didha (LD) for

back office operations.

iii] Communication: We have set up the requisite communication infrastructure for Pan

India presence. We have V-Sat and leased line based connectivity. Back up ISDN lines are

also taken as an alternative connectivity arrangements so as to safeguard against failure of

main links.

iv] Technical Team: The qualified technical team keeps on updating with the

technological needs of India Nivesh thus ensuring maximum advantage of innovation and

modernization in all activities.

Research

INSPL has witnessed tremendous growth in business in a short span of time since

its inception primarily due to making available value added services to its clients including

research and advisory services.


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Professional Approach: A strong research team of competent and experienced

professionals continuously striving to pick up the best investment opportunities for our

clients.

Secondary Market: We provide Fundamental research reviews on news and events

such as results, announcements on key stocks and its likely impact on companies & stock

prices. Technical research giving broad overview of equity market as a whole on a daily

basis.

Primary Markets: IPO Research report provides an in-depth analysis viz. the

background of company, financial health, comparative valuations, comments and overall

market views for forthcoming IPOs. We provide Mutual fund research reports, advisoryservices to clients for selection of schemes etc.


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OUR BRANCHES

Andheri East:

3 & 4, La-Spazio Showroom, Plot No. 487, Next to Chakala Petrol Pump, Andheri - Kurla

Road, Andheri East, Mumbai 400 069.

Contact person: Manmohan Choudhary

Tel: +91 22 28201661/62/63

Malad East:

26 Ruia Market, Bhadarmal Ruia Marg, Off. Rani Sati Marg, Malad East, Mumbai 400 097.

Contact person: Paras Pachori

Tel: +91 22 28712861

Marine Lines:

203, Standard House, 83, M. K. Road, Marin Lines, Mumbai 400 002.

Contact person: Manmohan Choudhary

Tel: +91 22 28201661/62/63

Fort:

A/11 Tamarind House, Tamarind Lane, Fort, Mumbai 400 001.

Contact person: Dinesh Arya

Tel: +91 22 66158880/885

Jaipur:

4, The Mile Stone, 6th floor, Bapu Nagar, Gandhi Nagar, Jaipur.

Contact person: Naveen Jain

Tel: +91 141 4034575/76

Surat:

Shop No. M-19, Metro Tower, Ring Road, Surat 395 002.


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Contact person: Sunil Kabra

Tel: +91 9374539276

Indore:168, Rathi Mansion, Jaora Compound, Indore

Contact person: Rajesh Sirothiya

Tel: +91 9893032223


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Chapter 3

INTRODUCTION OF RECESSION

Introduction:-

The economic slowdown of the advanced countries which started around mid-2007,

as a result of sub-prime crisis in USA, led to the spread of economic crisis across the globe.

Many hegemonic financial institutions like Lehman Brothers or Washington Mutual or

General Motors collapsed and several became bankrupt in this crisis. According to the

current available assessment of the IMF, the global economy is projected to contract by 1.4

per cent in 2009.Even as recently as six months ago, there was a view that the fallout of the

crisis will remain confined only to the financial sector of advanced economies and at the

most there would be a shallow effect on emerging economies like India. These

expectations, as it now turns out, have been belied. The contagion has traversed from the

financial to the real sector; and it now looks like the recession will be deeper and the

recovery longer than earlier anticipated. Many economists are now predicting that this

GreatRecession of 2008-09 will be the worst global recession since the 1930s.

The current global financial crisis is rooted in the subprime crisis which surfaced over

a year ago in the United States of America. During the boom years, mortgage brokers

attracted by the big commissions, encouraged buyers with poor credit to accept housing

mortgages with little or no down payment and without credit checks. A combination of low

interest rates and large inflow of foreign funds during the booming years helped the banks

to create easy credit conditions for many years. Banks lent money on the assumption that

housing prices would continue to rise. Also the real estate bubble encouraged the demand

or houses as financial assets. Banks and financial institutions later repackaged these debts

with ther high-risk debts and sold them to world- wide nvestors creating financial

instruments called CDOs or Collateralized Debt Obligations (Sadhu2008). In this way risk

was passed on multifold through derivatives trade.

Less than a year ago, much of what has happened in the Indian economy since lastOctober would have been hard to anticipate. I recall, around this time last year, the most


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frequently asked questions (FAQs) were, what are the factors that put India on a high

growth trajectory and what can we do to remain there? Today, the FAQ is, when and how

do we get back on to the high growth trajectory? The sharp turn around in the FAQs

summarizes in a nutshell the impact of the global financial crisis on India.

The global financial crisis originated in United States of America. During booming

years when interest rates were low and there was great demand for houses, banks

advanced housing loans to people with low credit worthiness on the assumption that

housing prices would continue to rise. Later, the financial institutions repackaged these

debts into financial instruments called Collateralized Debt Obligations and sold them to

investors world-wide. In this way the risk was passed on multifold through derivatives trade.

Surplus inventory of houses and the subsequent rise in interest rates led to the decline of

housing prices in the year 2006-07 which resulted in unaffordable mortgage payments and

many people defaulted or undertook foreclosure. The house prices crashed and the

mortgage crisis affected many banks, mortgage companies and investment firms world-

wide that had invested heavily in sub-prime mortgages.

Different views on the reasons of the crisis include boom in the housing market,

speculation, high-risk mortgage loans and lending practices, securitization practices,

inaccurate credit ratings and poor regulation of the financial institutions. The financial crisis

has not only affected United States of America, but also European Union, U.K and Asia.

The Indian Economy too has felt the impact of the crisis to some extent. Though it is difficult

to quantify the impact of the crisis on India, it is felt that certain sectors of the economy

would be affected by the spillover effects of the financial crisis. Surplus inventory of houses

and increase in interest rates led to a decline in housing prices in 2006-2007 resulting in an

increased defaults and foreclosure activity that collapsed the housing market ( Sengupta

2008 ). Consequently, a large number of properties were up for sale affecting mortgage

companies, investment firms and government sponsored enterprises which had invested

heavily in sub prime mortgages. Since the collateral debt instruments had been globally

distributed, many banks and other financial institutions around the world were affected.

Major Banks and other financial institutions around the world have reported losses of

approximately US $ 435 billion as on 17th July, 2008 (Onaran 2008). Thus with the failure

of a few leading institutions in United States, the entire financial system in the world has

been affected


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Chapter 3

MEANING OF RECESSION

Meaning Of Recession:-

A recession is a decline in a country's gross domestic product (GDP) growth for two

or more consecutive quarters of a year. A recession is also preceded by several quarters of

slowing down. An economy, which grows over a period of time, tends to slow down the

growth as a part of the normal economic cycle. An economy typically expands for 6-10

years and tends to go into a recession for about six months to 2 years. A recessionnormally takes place when consumers lose confidence in the growth of the economy and

spend less. This leads to a decreased demand for goods and services, which in turn leads

to a decrease in production, lay-offs and a sharp rise in unemployment. Investors spend

less; as they fear stocks values will fall and thus stock markets fall on negative sentiment.

Risk aversion, deleveraging and frozen money markets and reduced investor interest

adversely affect capital and financial flows, import-export and overall GDP of an economy.

This is exactly what happened in US and as a result of contagion effect spread all over theworld due to high integration in the global economy.

RECESSIONS ARE the result of reduction in the demand of products in the global

market. Recession can also be associated with falling prices known as deflation due to lack

of demand of products. Again, it could be the result of inflation or a combination of

increasing prices and stagnant economic growth in the west.Recession in the West,

especially the United States, is a very bad news for our country. Our companies in India

have most outsourcing deals from the US. Even our exports to US have increased over the

years. Exports for January have declined by 22 per cent. There is a decline in the

employment market due to the recession in the West. There has been a significant drop in

the new hiring which is a cause of great concern for us.

Some companies have laid off their employees and there have been cut in

promotions, compensation and perks of the employees. Companies in the private sector

and government sector are hesitant to take up new projects. And they are working on


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existing projects only. Projections indicate that up to one crore persons could lose their jobs

in the correct fiscal ending March. The one crore figure has been compiled by Federation of

Indian Export Organizations (FIEO), which says that it has carried out an intensive survey.

There has also been a decline in the tourist inflow lately. The real estate has also a

problem of tight liquidity situations, where the developers are finding it hard to raise

finances.IT industries, financial sectors, real estate owners, car industry, investment

banking and other industries as well are confronting heavy loss due to the fall down of

global economy. Federation of Indian chambers of Commerce and Industry (FICCI) found

that faced with the global recession, inventories industries like garment, gems, textiles,

chemicals and jewellery had cut production by 10 per cent to 50 per cent.

Definition of recession:-

Recession is not to be confused with depression. Recession means a slow down or

slump or temporary collapse of a business activity. In its early stage it can be controlled in a

methodical manner. Experience helps to avert total collapse. Unchecked, it leads to severe

depression. Depression is a dead end. It is time to close shop completely. It is a total state

of irrevocable economic failure. When a country is doing well all round its Gross Domestic

Product (GDP) is on the rise. Overall economy is bullish; it is not only the stock exchanges

that tell riches to rags stories but even small businesses. It all adds to the national

exchequer. An economist is likely to give a detailed, comprehensive definition of recession.

But for the layman who has been affected knows it only one way-when he loses his job and

has no money to pay his credit and loans.

Recession is when the consumer faces foreclosure and the banker comes knocking

for his pound (or dollar) of flesh. Many companies and whole countries go bankrupt for want

of liquid funds and cash flow for even daily requirements If you look at it from the point of

view of a businessman, recession is a transitory phase. The Business Cycle Dating

Committee of the National Bureau of Economic Research has another definition. It profiles

the businesses that have peaked with their activity in one season and it falls naturally in the

next season. It regains its original position with new products or sales and continues to

expand. This revival makes the recession a mild phase that large companies tolerate.


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As the fiscal position rises, there is no reason to worry. Recession can last up to a

year. When it happens year after year then it is serious. Are we facing a recession or not?

Yes, for the simple reason that not only our neighbuors but our friends are unemployed.

There is less of business talk and more billing worries. Transitory recessions are good for

the economy, as it tends to stabilize the prices. It allows run away bullish companies to slow

down and take stock. There is a saying, when its tough the tough get going. The weaker

companies will not survive the brief recession also. Stronger companies will pull through its

resources. So when is it time to worry? When you are facing a foreclosure, when the chips

are down and out and creditors file cases for recovery.

Firms face closures when they go through recession and are not able to recover

from losses. If, at this time, they are not able to sustain their prices and stocks then there is

more trouble. Even when the recession period gets over, they will not be able to do well. If a

business survives a recession period they should be able to survive a depression. But how

many recession proof businesses are there? Who will eventually survive the recession?

1. Those that have been able to save their funds.

2. Those who have not invested in fly-by-night companies.

3. Those who remain clam till the storm passes.

4. Those that take stock immediately and decide to reinvest in a recession proof business.

In a 1975 New York Times article, economic statistician Julius Shiskin suggested

several rules of thumb to identify a recession; these included the rule of 'two successive

quarterly declines in GDP. Over time, the other rules have been largely forgotten, and a

recession is now often identified as the reduction of a country's GDP (or negative real

economic growth) for at least two quarters. Some economists prefer a more robust

definition of a 1.5% rise in unemployment within 12 months.In the United States the

Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) is

generally seen as the authority for dating US recessions. The NBER defines an economic

recession as: "a significant decline in [the] economic activity spread across the country,

lasting more than a few months, normally visible in real GDP growth, real personal income,

employment (non-farm payrolls), industrial production, and wholesale-retail sales." Almost


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universally, academic economists, policy makers, and businesses defer to the

determination by the NBER for the precise dating of a recession's onset and end.


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Chapter 4

RECESSION OF FINANCIAL CRISIS

Every single day, we spend some of our time catching up with the rise and the fall of

the world economy. Even today, months after the world economy simply crashed from its

long maintained great heights, people try to learn about its main reason. For a common

man, it all happened in just a few days time. But for those dealing with the share markets

and FOREX, the reasons take us far behind todays time. USA- The key factor for the fall

of world economy:

For a clear view, we need to get back to the past of the housing sector of America. Over

sometime back, the property value in the housing sector of America was driving the

countrys economy to a completely new level. People easily gained the credit conditions to

take the home loans from the perfect combination of the low interest rates and that of the

large inflow of the foreign funds. Thus, within a very short span of time, the demand for

property shot up and thus also fuelled the home prices further more than earlier. At the

same time, the loan agencies widened their plans and strategies to lure people take the

*loans for their new properties. Looking at the demand for properties, they provided huge

bonus values to the customers and thus succeeded in attracting a respectable number of

customers. But, at this point in the greed for money, they ignored the general checking

procedures such as the repaying capacity of the customers. They had blindly provided huge

loans to even those people who are included in the NINJA category, No Income, No Job,

No Assets. This disregarded all the principle of financial cautions. Moreover, as the

property value was at an all time high, people made the use of the increased property value

so as to refinance their homes at a much lower rate and further gained the second

mortgage. The loans providers despite of knowing that the interest rates would increase

with the passing time, lured the customers with an all time low interest rate thinking that

they would quickly refinance their money under more favorable terms. But this is where the

things went wrong. Over construction of houses thus led to the fall of the extra accounts of


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homes from the year 2006. Thus refinancing became extremely difficult and many people,

who were unable to refinance their homes, began defaulting the loans which thus raised the

interest rates which worsened the matter.

High price of crude oil:

The Middle East war fears that was pushed upwards by the world wide speculations

and the increase in the demand for the crude oil across the world increased the price of the

energy sources which acted as the inflationary tax. The high priced production thus lowered

the profit value and also at the same time reduced the consumption across. This partially

affected the fund of countries across the globe

Devaluation of the dollars:

The value of dollars in the global market is the key factor for its economy. The Iraq blunder

along with the Federal Reserve generated excess of dollars which thus caused the

continuous decline in the value of dollars in the global markets. This was pushed further

into a grave due to a few other factors related to that of dollar values.

The purchase of crude oil across the world takes place through the dollars. Thus, the fall in

the value of dollars means hike in the prices of crude oil. This further added to the problems

of high value of the crude oil. Across the international currency system, dollars are the

major reserve currency. Moreover, the various dollar paying investments that include of the

US treasury bills, etc. deal with excessive amounts of governments and foreign banks. With

the decline in the value of the dollars in the world economy, these huge investments

become less luring. But, the smallest disinvestment in these investments would directly

affect the bond prices and simultaneously increase the interest rate.

The outlook for India going forward is mixed. There is clear evidence of economic activity

slowing down. Real GDP growth has moderated modestly in the first and second quarters

of 2008/09, and sharply in the third quarter. The services sector, which has been our prime

growth engine for the last five years, is slowing, mainly in construction, transport and

communication, trade, hotels and restaurants sub-sectors. For the first time in seven years,

exports have declined in absolute terms for four months in a row during October 2008 -


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January 2009. Recent data indicate that the demand for bank credit is slackening despite

comfortable liquidity in the system. Dampened demand has dented corporate margins while

the uncertainty surrounding the crisis has affected business confidence. The index of

industrial production has shown negative growth for two recent months and 13 investment

demand is decelerating. All these factors suggest that growth will

moderate more than we had earlier thought.

In addressing the fall out of the crisis, India has several advantages. Some of these

are recent developments. Most notably, headline inflation, as measured by the wholesale

price index, has fallen sharply though consumer price inflation is yet to moderate. Clearly,

falling commodity prices have been the key drivers behind the disinflation; however, some

contribution has alsocome from slowing domestic demand. The decline in inflation should

revive and support consumption demand and reduce input costs for corporates.

Furthermore, the decline in global crude prices and naphtha prices, if sustained, will reduce

the size of subsidies to oil and fertilizer companies, opening up fiscal space for

infrastructure spending. From the external sector perspective, it is projected that imports will

shrink more than exports keeping the current account deficit modest.

There are also several structural factors that have come to India's aid. First,

notwithstanding the severity and multiplicity of the adverse shocks, India's financial markets

have shown admirable resilience. This is in large part because India's banking system

remains sound, healthy, well capitalized and prudently regulated. Second, our comfortable

reserve position provides confidence to overseas investors. Third, since a large majority of

Indians do not participate in equity and asset markets, the negative impact of the wealth

loss effect that is plaguing the advanced economies should be quite muted Consequently,

consumption demand should hold up well. Fourth, because of India's mandated priority

sector lending, institutional credit for agriculture has remained unaffected. The farm loan

waiver package implemented by the Government should further insulate the agriculture

sector from the crisis. Finally, over the years, India has built an extensive network of social

safetynet programmes, including the flagship rural employment guarantee programme.

These uniquely Indian versions of automatic stabilizers should

protect the poor from the extreme impact of the global crisis.


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Lastly, dollar value simply prevents the dragging of the US interest rates further

lower by the Federal Reserve. Thus, any small value of additional Federal Reserve easing

would further cause recession. Thus, all that we can do is wait and let the global market

force liquidation on the varied mal-investments. Liquidation is the only way to restore the

economic conditions of the market for a better future.


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REASON OF FINANCIAL CRISIS

The first hint of the trouble came from the collapse of two Bear Stearns hedge funds

early 2007. Subsequently a number of other banks and financial institutions also began to

show signs of distress. Matters really came to the fore with the bankruptcy of Lehman

Brothers, a big investment bank, in September 2008. The reasons for the crisis are varied

and complex. Some of them include boom in the housing market, speculation, high-risk

mortgage loans and lending practices, securitization practices, inaccurate credit ratings and

poor regulation.

1. Boom in the Housing Market:

Sub prime borrowing was a major contributor to an increase in house ownership

rates and the demand for housing. This demand helped fuel housing price increase and

consumer spending. Some house owners used the increased property value experienced in

housing bubble to re-finance their homes with lower interest rates and take second

mortgages against the added value to use the funds for consumer spending. Increase in

house purchases during the boom period eventually led to surplus inventory of houses,

causing house prices to decline, beginning in the summer of 2006. Easy credit, combinedwith the assumption that housing prices would continue to appreciate, had encouraged

many sub prime borrowers to obtain adjustable-rate mortgages which they could not afford

after the initial incentive period. Once housing prices started depreciating moderately in

many parts of the U.S, re-financing became more difficult. Some house owners were

unable to re-finance their loans reset to higher interest rates and payment amounts. Excess

supply of houses placed significant downward pressure on prices. As prices declined, more

house owners were at risk of default and foreclosure.

2. Speculation:

Speculation in real estate was a contributing factor. During 2006, 22 per cent of

houses purchased (1.65 million units) were for investment purposes with an additional 14

per cent (1.07 million units) purchased as vacation homes. In other words, nearly 40 per

cent of house purchases were not primary residences. Speculators left the market


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in2006,which caused investment sales to fall much faster than the primary market.

3. High- Risk Mortgage Loans and Lending Practices:

A variety of factors caused lenders tooffer higher-risk loans to higher-risk borrowers.

The risk premium required by lenders to offer a subprime loan declined. In addition to

considering high-risk borrowers, lenders have offered increasingly high-risk loan options

and incentives. These high-risk loans included No Income, No Job and No Assets loans. It

is criticized that mortgage underwriting practices including automated loan approvals were

not subjected to appropriate review and documentation.

4. Securitization Practices:

Securitization of housing loans for people with poor credit- not the loans

themselves-is also a reason behind the current global credit crisis. Securitization is a

structured finance process in which assets, receivables or financial instruments are

acquired, pooled together as collateral for the third party investments (Investment Banks).

Due to securitization, investor appetite for mortgage backed securities (MBS), and the

tendency of rating agencies to assign investment-grade ratings to MBS, loans with a high

risk of default could be originated, packaged and the risk readily transferred to others.

5. Inaccurate Credit Ratings:

Credit rating process was faulty. High ratings given by credit rating agencies

encouraged the flow of investor funds into mortgage-backed securities helping finance the

housing boom. Risk rating agencies were unable to give proper ratings to complex

instruments (Gregorio 2008). Several products and financial institutions, including hedge

funds, and rating agencies are largely if not completely unregulated.

6. Poor Regulation:

The problem has occurred during an extremely accelerated process of financial

innovation in market segments that were poorly or ambiguously regulated mainly in the

U.S. The fall of the financial institutions is a reflection of the lax internal controls and the

ineffectiveness of regulatory oversight in the context of a large volume of non-transparent

assets. It is indeed amazing that there were simply no checks and balances in the financialsystem to prevent such a crisis and not one of the socalled pundits in the field has


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sounded a word of caution. There are doubts whether the operations of derivatives markets

have been as transparent as they should have been or if they have been manipulated.

Recession Attributes

A recession has many attributes that can occur simultaneously and can include declines in

coincident measures of activity such as employment, investment, and corporate

profits.A severe (GDP down by 10%) or prolonged (three or four years) recession is

referred to as an economic depression, although some argue that their causes and

cures can be different.

Causes of recessions

Currency crisis

Energy crisis

War

Under consumption

Overproduction

Financial crisis

Price of Fuels

Effects of recessions

Bankruptcies

Credit crunches

Deflation (or disinflation)

Foreclosures

Unemployment

Market and Recession:-

Stock Some recessions have been anticipated by stock market declines. In Stocks

for the Long Run, Siegel mentions that since 1948, ten recessions were preceded by a

stock market decline, by a lead time of 0 to 13 months (average 5.7 months), while ten

stock market declines of greater than 10% in the DJIA were not followed by a

recession.The real-estate market also usually weakens before a recession.


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However real-estate declines can last much longer than recessions.Since the

business cycle is very hard to predict, Siegel argues that it is not possible to take advantage

of economic cycles for timing investments. Even the National Bureau of Economic

Research (NBER) takes a few months to determine if a peak or trough has occurred in the

US.During an economic decline, high yield stocks such as fast moving consumer goods,

pharmaceuticals, and tobacco tend to hold up better. However when the economy starts to

recover and the bottom of the market has passed (sometimes identified on charts as a

MACD), growth stocks tend to recover faster. There is significant disagreement about how

health care and utilities tend to recover. Diversifying one's portfolio into international stocks

may provide some safety; however, economies that are closely correlated with that of the

U.S. may also be affected by a recession in the U.S.There is a view termed the halfway rule

according to which investors start discounting an economic recovery about halfway through

a recession. In the 16 U.S. recessions since 1919, the average length has been 13 months,

although the recent recessions have been shorter. Thus if the 2008 recession followed the

average, the downturn in the stock market would have bottomed around November 2008.

Today vs. the 1980-82 Recession

Output, Employment and Industrial Production in the "1980-82 Recession", econbrowser: In

today's NYT, Casey Mulligan presents an interesting picture of GDP during the "1980-82

recession" -- the conjoining of the two NBER\ defined recessions in 1980 and 1981-82.

Based on the comparison with the current recession, he concludes: While the job losses,

foreclosures, stock declines and other casualties of the current recession have been very

painful, substantially more bad economic news is needed to make this recession worse

than the downturns of 1980-'82, at least in G.D.P. terms.

Here is Professor Mulligan's graph.
http://economistsview.typepad.com/economistsview/2009/06/today-vs-the-198082-recession.htmlhttp://www.econbrowser.com/archives/2009/06/employment_and_1.htmlhttp://economix.blogs.nytimes.com/2009/06/03/worse-than-1982/http://economix.blogs.nytimes.com/2009/06/03/worse-than-1982/http://economistsview.typepad.com/economistsview/2009/06/today-vs-the-198082-recession.htmlhttp://www.econbrowser.com/archives/2009/06/employment_and_1.htmlhttp://economix.blogs.nytimes.com/2009/06/03/worse-than-1982/


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.

Here, without comment, are three graphs of employment and industrial production,but normalizing the start date instead of the end date. Why one would want to

normalize on the trough especially when the trough date is unknown, I'm not certain,

but there's nothing to stop one from doing so. But, as I say, I'll normalize on the start

date in the graphs below.
http://economistsview.typepad.com/.a/6a00d83451b33869e2011570bdfa8e970b-popup


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Log real GDP normalized on 2007Q4 (blue), May WSJ mean survey forecast (teal x), log

real GDP from "1980-82 recession" normalized on 1980Q1 (red). Source: BEA, preliminary

2009Q1 release, WSJ May survey, NBER and author's calculations.


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Log nonfarm payroll employment normalized on 2007M12(blue), log NFP from "1980-82

recession" normalized on 1980M01 (red). Source: BLS via FREDII, NBER and author's

calculations.


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Log industrial production normalized on 2007M12(blue), log NFP from "1980-82 recession"

normalized on 1980M01 (red). Source: Federal Reserve via FREDII, NBER and author's

calculations.

One observation, regarding data revisions. NBER doesn't place central import to GDP, in

part because GDP is subject to sometimes substantial revisions that alter not only the level,

but contourof GDP. This is important to the extent that Professor Mulligan's graph (and my

Figure 1) compare preliminary 2009Q1 data to final (and repeatedly revised) GDP figures. I

suspect (although have no independent validation) that recent GDP figures will probably be

revised downward. In this latest episode, I also wonder about the large contributions to

overall GDP growth coming from the finance sector (think about how easy it is to calculate

real value added in that sector), when the "F" in FIRE accounts for something like 5% of

GDP (see an interesting article by Ed Leamerhere).
http://www.springerlink.com/content/k812767821271736/http://www.springerlink.com/content/k812767821271736/


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Financial Crisis Tests the Private Equity Industry

Submitted by InsideTrade Staffon Monday, 18 January 2010Comments (2)

Whether you are an investor, trader, or just a consumer, the financial crisis has affected

EVERYONE. Though many sectors of the investment world have been hit hard, few can

compare to the private equity market. Since it is intimately tied to stock performance, as

you will see, it can become VERY volatile in times of panic. In this article, we will provide

you facts which demonstrate this point, while also covering the rapid growth AND decline of

private equity over the last decade.

Before the crisis, the private equity market had been flourishing since its MVP year of

1978. In this year, venture capital investments SKYROCKETED from a measly $39 Million

in 1977, to an astounding $570 Million in 1978. You may be asking yourself, What could

cause a 1000%+ increase in private equity investing in just one year? Well, thats a

question with a two-part answer. First, the government lowered the capital gains tax from a

maximum of 49% to 28%, leaving investors with HIGHER net profits. Second, the

government removed some of the strict legislation from ERISA, allowing pension funds to

become major investors in private equity funds. As a result of these new laws, institutional

investors began piling into the private equity markets and things were great, until it all came

to a screeching halt in late 2007.

Once market sentiment changed during the HEART of the financial crisis, it was almost

impossible to find investors for private equity. Unfortunately, with little to no faith in the

economy, MOST of these investors left the market, protecting themselves from future risk.

Though this was the case in almost EVERY investment market, as you can see in the graph

below, it was especially true in the private equity industry. Scroll down and take a look!
http://insidetradellc.com/blog/author/admin/http://insidetradellc.com/blog/financial-crisis-tests-private-equity-industry/#idc-containerhttp://insidetradellc.com/blog/private-equity-investing-a-growing-market/http://en.wikipedia.org/wiki/Employee_Retirement_Income_Security_Acthttp://insidetradellc.com/blog/author/admin/http://insidetradellc.com/blog/financial-crisis-tests-private-equity-industry/#idc-containerhttp://insidetradellc.com/blog/private-equity-investing-a-growing-market/http://en.wikipedia.org/wiki/Employee_Retirement_Income_Security_Act


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When you first glance at the chart, you have to be amazed by the HUGE drop in equity from

Q4 2007 to Q2 2009. Believe it or not, $178 Billion was raised by private equity funds in

2008, and ONLY $12 Billion was raised in 2009! Thats a 93.3% DROP in money raisedover just one year! As you can see, raising money in the private equity markets is almost

impossible when theres poor market sentiment. The reason for this is simple, steady

growth is what interests private equity investors, not value hunting during unstable times.

The reality of the current economy is this, there has been a massive financial disaster that

has affected every market world-wide, and though it seems to be coming to an end, it may

take years to fully resolve. Now in the aftermath there is still plenty of hope, but the fact is,

many investors are badly scarred from these recent events. Despite all of the fear in the

market, remember this, if you time things right in a depressed economy, you CAN turn dust

into diamonds while it recovers. To illustrate this critically IMPORTANT point, we have

provided another chart below!

Deepening relationship with the exiting clients: A big area of focus
http://insidetradellc.com/blog/what-is-private-equity-fund-of-funds/http://insidetradellc.com/?attachment_id=1579/private-equity-industry-market-invest/http://insidetradellc.com/blog/what-is-private-equity-fund-of-funds/


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The global economic slowdown caused by subprime crisis particularly in the US and

Europe has largely impacted the Indian ITeS and BPO sector during the financial year

2009. The clients in the western countries are affected due to slowdown and many of them

are re-negotiating the pricing, or opting for other vendors which has further affected the

Indian ITeS-BPO companies earnings. Hence, the Indian BPO companies have witnessed

low revenue growth and hence low profits growth. The Indian ITeS-BPO companies are

increasingly focussing on adopting various strategies to tackle the current slowdown. As per

the survey, deepening relationship with the existing clients remained the most preferred

option for the Indian ITeS-BPO companies, followed by offering more value added services

to the clients. Likewise, companies are also entering new verticals to expand their

businesses.

In the past few years, verticals such as healthcare and telecom seem to be catching up as

more companies are foraying into these verticals. Healthcare, which was considered the

second mostpromising vertical according to last years study, has today taken the first

position. Telecom has taken the second position, thus pushing BFSI to the third position. As

mentioned earlier, the slow down in the banking sector is forcing companies to look towards

other prospective verticals.

Global economic slowdown affects pricing the most

The global economic slowdown has affected the plans of ITeS-BPO companies inmany ways. Pricing and volume of business of these companies, for instance, has taken


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the biggest hit owing to the slowdown. The respondent companies have awarded an

average rank of 2.4 to pricing, whereas business volume has been ranked 2.6. As a result,

pricing is under pressure for new contracts as well as the existing ones. Additionally,

volume of business awarded to a company may also be a cause of concern.

Companies positive on industry growth in the next two years

While last year skilled manpower was cited as the hurdle to industry growth, this year

economic slowdown was cited as the hurdle to industry growth. Besides, other emerging

markets like China also pose a threat to the domestic market. Some respondents (23.0%)

felt that the industry is likely to grow by more than 21% in 2010.The downturn in the global markets is expected to increase the reliance of companies on

outsourcing to reduce operating costs and to attain higher productivity; our survey results

corroborates this fact as around 35.1% companies expect the industry to grow by more

than 21% in 2011.


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Companies positive on industry growth in the next two years

While last year skilled manpower was cited as the hurdle to industry growth, this year

economic slowdown was cited as the hurdle to industry growth. Besides, other emerging

markets like China also pose a threat to the domestic market. Some respondents (23.0%)

felt that the industry is likely to grow by more than 21% in 2010.

The downturn in the global markets is expected to increase the reliance of

companies on outsourcing to reduce operating costs and to attain higher productivity; our

survey results corroborates this fact as around 35.1% companies expect the industry to

grow by more than 21% in 2011.


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Recession and politics

Generally an administration gets credit or blame for the state of economy during its time.

This has caused disagreements about when a recession actually started. In an

economic cycle, a downturn can be considered a consequence of an expansion reaching

an unsustainable state, and is corrected by a brief decline. Thus it is not easy to isolate the

causes of specific phases of the cycle.The 1981 recession is thought to have been caused

by the tight-money policy adopted by Paul Volcker, chairman of the Federal Reserve Board,

before Ronald Reagan took office. Reagan supported that policy. Economist Walter Heller,

chairman of the Council of Economic Advisers in the 1960s, said that "I call it a Reagan-

Volcker-Carter recession.

The resulting taming of inflation did, however, set the stage for a robust growth

period during Reagan's administration.It is generally assumed that government activity has

some influence over the presence or degree of a recession. Economists usually teach that


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to some degree recession is unavoidable, and its causes are not well understood.

Consequently, modern government administrations attempt to take steps, also not agreed

upon, to soften a recession. They are often unsuccessful, at least at preventing a recession,

and it is difficult to establish whether they actually made it less severe or longer lasting.

History of recessions

Global recessions:-

There is no commonly accepted definition of a global recession, IMF regards periods

when global growth is less than 3% to be global recessions. The IMF estimates that global

recessions seem to occur over a cycle lasting between 8 and 10 years. During what the

IMF terms the past three global recessions of the last three decades, global per capitaoutput growth was zero or negative.Economists at the International Monetary Fund (IMF)

state that a global recession would take a slowdown in global growth to three percent or

less. By this measure, three periods since 1985 qualify: 1990-1993, 1998 and 2001-

2002.According to economists, since 1854, the U.S. has encountered 32 cycles of

expansions and contractions, with an average of 17 months of contraction and 38 months

of expansion. However, since 1980 there have been only eight periods of negative

economic growth over one fiscal quarter or more, and four periods considered recessions:

January-July 1980 and July 1981-November 1982: 2 years total

July 1990-March 1991: 8 months

March 2001-November 2001: 8 months

December 2007-current: 15 months as of March 2009From 1991 to 2000, the U.S.

experienced 37 quarters of economic expansion, the longest period of expansion on

record.For the past three recessions, the NBER decision has approximately conformed to

the definition involving two consecutive quarters of decline. However the 2001 recession did

not involve two consecutive quarters of decline, it was preceded by two quarters of

alternating decline and weak growth.

Current recession in some countries Official economic data shows that a substantial

number of nations are in recession as of early 2009. The US entered a recession at the end

of 2007, and 2008 saw many other nations follow suit.


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United States

The United States housing market correction (a consequence of United States

housing bubbles) and sub prime mortgage crisis has significantly contributed to a

recession.The 2008/2009 recession is seeing private consumption fall for the first time in

nearly 20 years. This indicates the depth and severity of the current recession With

consumer confidence so low, recovery will take a long time. Consumers in the U.S. have

been hard hit by the current recession, with the value of their houses dropping and their

pension savings decimated on the stock market. Not only have consumers watched their

wealth being eroded they are now fearing for their jobs as unemployment rises. U.S.

employers shed 63,000 jobs in February 2008, the most in five years.

Former Federal Reserve chairman Alan Greenspan said on April 6, 2008 that "There

is more than a 50 percent chance the United States could go into recession.". On October

1, the Bureau of Economic Analysis reported that an additional 156,000 jobs had been lost

in September. On April 29, 2008, nine US states were declared by Moody's to be in a

recession. In November 2008 Employers eliminated 533,000 jobs, the largest single month

loss in 34 years. For 2008, an estimated 2.6 million U.S. jobs were eliminated.Although the

US Economy grew in the first quarter by 1%, by June 2008 some analysts stated that due

to a protracted credit crisis and "rampant inflation in commodities such as oil, food and

steel", the country was nonetheless in a recession.

The third quarter of 2008 brought on a GDP retraction of 0.5% the biggest decline

since 2001. The 6.4% decline in spending during Q3 on non-durable goods, like clothing

and food, was the largest since 1950. A Nov 17, 2008 report from the Federal Reserve

Bank of Philadelphia based on the survey of 51 forecasters suggested that the recession

started in April 2008 and will last 14 months. They project real GDP declining at an annual

rate of 2.9% in the fourth quarter and 1.1% in the first quarter of 2009. These forecasts

represent significant downward revisions from the forecasts of three months ago.A

December 1, 2008, report from the National Bureau of Economic Research stated that the

U.S. has been in a recession since December 2007 (when economic activity peaked),

based on a number of measures including job losses, declines in personal income, and

declines in real GDP.


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Other countries:-

A few other countries have seen the rate of growth of GDP decrease, generally

attributed to reduced liquidity, sector price inflation in food and energy, and the U.S.

slowdown. These include the United Kingdom, Canada, Japan, Australia, China, India, New

Zealand and the Euro zone. In some, the recession has already been confirmed by experts,

while others are still waiting for the fourth quarter GDP growth data to show two

consecutive quarters of negative growth. India along with China is experiencing an

economic slowdown but not a recession.

Current crisis in the US

The defaults on sub-prime mortgages (home loan defaults) have led to a major crisis

in the US. Sub-prime is a high risk debt offered to people with poor credit worthiness or

unstable incomes. Major Banks have landed in trouble after people could not pay back

loans.The housing market soared on the back of easy availability of loans. The realty sector

boomed but could not sustain the momentum for long, and it collapsed under the

gargantuan weight of crippling loan defaults.

Foreclosures spread like wildfire putting the US economy on shaky ground. This,

coupled with rising oil prices at $100 a barrel, slowed down the growth of the economy.

Past recessions in the US The US economy has suffered 10 recessions since the end of

World War II. The Great Depression in the United was an economic slowdown, from 1930

to 1939. It was a decade of high unemployment, low profits, low prices of goods, and high

poverty.The trade market was brought to a standstill, which consequently affected the world

markets in the 1930s. Industries that suffered the most included agriculture, mining, and

logging.In 1937, the American economy unexpectedly fell, lasting through most of 1938.

Production declined sharply, as did profits and employment. Unemployment jumped

from 14.3 per cent in 1937 to 19.0 per cent in 1938.The US saw a recession during 1982-83

due to a tight monetary policy to control inflation and sharp correction to overproduction ofthe previous decade. This was followed by Black Monday in October 1987, when a stock


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market collapse saw the Dow Jones Industrial Average plunge by 22.6 per cent affecting

the lives of millions of Americans.The early 1990s saw a collapse of junk bonds and a

financial crisis.The US saw one of its biggest recessions in 2001, ending ten years of

growth, the longest expansion on record.From March to November 2001, employment

dropped by almost 1.7 million. In the 1990-91 recessions, the GDP fell 1.5 per cent from its

peak in the second quarter of 1990. The 2001 recession saw a 0.6 per cent decline from

the peak in the fourth quarter of 2000.The dot-com burst hit the US economy and many

developing countries as well. The economy also suffered after the 9/11 attacks. In 2001,

investors' wealth dwindled as technology stock prices crashed.

Impact of an American Recession on India:-Indian companies have major outsourcing deals from the US. India's exports to the

US have also grown substantially over the years. The India economy is likely to lose

between 1 to 2 percentage points in GDP growth in the next fiscal year. Indian companies

with big tickets deals in the US would see their profit margins shrinking.The worries for

exporters will grow as rupee strengthens further against the dollar. But experts note that the

long-term prospects for India are stable. A weak dollar could bring more foreign money to

Indian markets. Oil may get cheaper brining down inflation. A recession could bring down

oil prices to $70.

The whole of Asia would be hit by a recession as it depends on the US economy.

Even though domestic demand and diversification of trade in the Asian region will partly

counter any drop in the US demand, one simply can't escape a downturn in the world's

largest economy. The US economy accounts for 30 per cent of the world's GDP.Says Sudip

Bandyopadhyay, director and CEO, Reliance Money: "In the globalised world, complete

decoupling is impossible. But India may remain relatively less affected by adverse global

events." In fact, many small and medium companies have already started developing trade

ties with China and European countries to ward off big losses. Manish Sonthalia, head,

equity, Motilal Oswal Securities, says if the US economy contracts much more than

anticipated, the whole world's GDP growth-which is estimated at 3.7 per cent by the IMF-

will contract, and India would be no exception.


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The only silver lining is that the recession will happen slowly, probably in six months

or so. As of now, IT and IT-enabled services, textiles, jewellery, handicrafts and leather

segments will suffer losses because of their trade link. Certain sections of commodities

could face sharp impact due to the volatile nature of these sectors. C.J. George, managing

director, Geojit Financial Services, says profits of lots of re-export firms may be affected.

Countries like China import commodities from India do some value-addition and then export

them to the US.The IT sector will be the worst hit as 75 per cent of its revenues come from

the US. Low demand for services may force most Indian Fortune 500 companies to slash

their IT budgets. Zinnov Consulting, a research and offshore advisory, says that besides

companies from ITeS and BPO, automotive components will be affected.During a full

recession, US companies in health care, financial services and all consumers demand

driven firms are likely to cut down on their spending.

Among other sectors, manufacturing and financial institutions are moderately

vulnerable. If the service sector takes a serious hit, India may have to revise its GDP to

about 8 to 8.5 per cent or even less. Lokendra Tomar, senior vice-president, Integrand, a

BPO firm, says the US recession is likely to have a dual impact on the outsourcing industry.

Appreciating rupee along with poor performance of US companies (law firms, investment

banks and media houses) will affect the bottom line of the outsourcing industry. Small

BPOs, which are operating at a net margin of 7-8 per cent, will find it difficult to

survive.According to Dharmakirti Joshi, director and principal economist of CRISIL, along

and severe recession will seriously affect the portfolio and fixed investment flows.

Corporates will also suffer from volatility in foreign exchange rates. The export sector will

have to devise new strategies to enhance productivity.

In India, the impact of the crisis has been deeper than what was estimated by our policy

makers although it is less severe than in other emerging market economies. The extent of

impact has een restricted due to several reasons such as-

Indian financial sector particularly our banks have no direct exposure to tainted assets and

its off-balance sheet activities have been limited. The credit derivatives market is in an


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embryonic stage and there are restrictions on investments by residents in such products

issued abroad.

Indias growth process has been largely domestic demand driven and its reliance on

foreign savings has remained around 1.5 per cent in recent period.

Indias comfortable foreign exchange reserves provide confidence in our ability to manage

our balance of payments notwithstanding lower export demand and dampened capital

flows.

Headline inflation, as measured by the wholesale price index (WPI), has declined sharply.

Consumer price inflation too has begun to moderate.

Rural demand continues to be robust due to mandated agricultural lending and social

safety-net programmes.

Indias merchandise exports are around 15 per cent of GDP, which is relatively modest.

Despite these mitigating factors, India too has to weather the negative impact of the crisis

due to rising two-way trade in goods and services and financial integration with the rest of

the world.

Consequences of US recession on India job market

Worst affected because of US recession will be the service industry of India. Under

service industries come BPO, KPO, IT, ITeS etc. Service industry contributes about 52% toIndia's GDP growth. Now if that is going to get hurt then it will also hurt India's overall

growth but very slightly. India is not going to face a major impact due to US recession.

People may say that there is going to be a huge job loss due to recession. and will cite the

example of TCS firing about 500 employees but these were employees who didnt perform

and for cost cutting one have to reduce Non performing asset and that exactly what has

been done.


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There is no threat to the skilled people. According to NASSCOM India will have a

shortage of about 5 million skilled people in IT/ITeS. So there are lots of opportunities.Apart

from this India's travel, tourism and power industry is going to grow at a better rate. This is

again a good sign. India has a huge population so a huge consumer base so we dont have

to always depend on US for our growth. India's GDP is expected to grow at the rate of 8.5-

8.9 % which is again way above the growth rate of US and only second highest in the world

after China.This recession gives us opportunity to be innovative and to think out of box so

that the US directly doesnt affect our robust growth.

Due to increasing Rupee exporters are having a hard time but it has been noted that our

exporters are not that efficient and in past they got the benefit of depreciating rupee. So

now its time to be innovative and more effective and increase the over all efficiency and go

for systematic cost cutting to balance the rupee effect. Infact there are lots of scope for

improvement. In West Africa goods at departmental stores are sold at the rate 5 times than

Indian price and Indian goods are not exported to several countries in West Africa. Its an

excellent opportunity for our exporters.

10 Indian industries to do well during recession In the current global economic slowdown,

every sector of business is being affected and is witnessing a hard time. But IKON

Marke

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