In the past one month across the globe the strongest world economies in convergence started the process of bailouts and injection funds in the hands of bankrupt banks and into the system. US lead the pack with Europe and other emerging markets followed with that process .When that too was unable to work as a catalyst to save the carnage At that time a historical day came where all the central banks of the world of all economies made a rate cut in the lending rates. Despite that it still followed the destiny of carnage of the falling global market wiping out each and every inch of profit and capital erosion from the investment and other assets.
Even till now the process of injection funds is being made as a routine process to save the erosion assets.
This entire process will only stop the recent huge devaluation of the assets but in the long term the momentum of the growth the all the economies across the board will be slowed down despite injection of funds in to the system which is meant to meet the requirement of the industrial segment.
Stringent credit policies backed up by low demands less consumer spending as they the consumers are more interested towards saving will not only damage the annual reports of the companies for the coming few years but also deals like GM,CHYRSLER will take place .Huge amount of unemployment along with cost cuts, delayed production schedules ,and winding up of expansion plans .The rate of merger and acquisition will also rise at the same time in order to take the advantage of quality companies at less valuation which will again assert pressure on the long term outlook of the companies profiles.
In India at home banks are in the fear that as they have given loans to the companies to meet the capital expenditure which is a short term plan .These plans have made a mismatch with the asset and liability ratio as these are short term plans( Capital Expenditure) while the loan is dependent on the long term strength of cash flow( as loan is for a longer duration).The next question which will come in the mind is the credit worthiness which have already being asked on the real estate companies ,telecommunication and power sector.
Hence I conclude this episode with this message that this crisis will be over but the effect will be borne for a longer time, just like the situation after a hurricane is over.
CAclubindia
