Author: R.Venkatakrishnan, Director – Value Added Corporate Services P Ltd
As we draw closure of yet another financial year, for most Indian businesses, it time to quickly take stock of the year that has just gone by. The year has been quite torrid for torrid for most part and many would like to quickly put bitter memories behind. Irrespective of what happened, it would be a good idea of putting some thoughts in place to ensure that we have some game plan for the ensuing year. It may also be something like the proverbial New Year resolutions that we pass, except that in the case of business the results end up staring at our face! I have a couple of thoughts on the same.
To begin with I personally feel that the worst is behind us. Like all hard core accountants, that comes with a couple of caveats! To start with I would imagine that the Indian recovery would to a large extent be a function of a decisive mandate in the ensuing polls! While economic decisions in the recent past have been positive, albeit a little too late, a fractured verdict could bring back problems of lack of decisive policy making and accountability.
Interest rates that have remained unreasonably high over the last couple of years could potentially show signs of easing in the next couple of quarters, at least based on present trends on inflation. However, a bad monsoon could be game spoiler. The quantitative easing in US may not be make a very big impact considering that the some deft handling by RBI has ensured that the foreign exchange reserves have gone back to the USD 300 billion mark. The other positive being that the short term external borrowing, that is debts due during 2014, has come down to 21% of the total debt – Down from 23%.
Those are couple of other issues on the economic front! On the regulatory side, the New Companies Act 2013 has become fully operational with the Government notifying many more sections. The new act brings about a lot more changes to the corporate regulatory framework. Some of the changes are stringent and would warrant close monitoring to ensure compliance. The implementation of GST may not happen in a tearing hurry and would take some more time, which would be unfortunate but businesses have to accept ground reality.
On the business front the period of slowdown or recession, whichever way you would want to look at it, has created some new perspectives to the way people have looked at business. One thing that has become certain is uncertainty/volatility in the business environment. The changes have been driven by regulatory requirements / customer changes / competitor activity /technology or a combination of many or all of these. Speed has also become a new normal as customers have realized that it would be possible to demand at shorter delivery cycles. In normal circumstances it may not have been possible but business houses were operating under sub-optimal conditions even irrational delivery demands have been accepted. The need to collaborate or network with every stakeholder has become the order of the day. If need be organizations have not shied away from even collaborating with competition!
On investment strategy for the New Year – it would all depend on the risk appetite! Even from a debt perspective I would look at a combination of Fixed Maturity Plans and good dose of gilt securities. When interest rates come down gilt securities are bound to go up and will return good returns. With the economy probably bottoming out, taking contrarian view and investing with a long term view will deliver good returns. For a short term punter a straddle, i.e., buying both put and call options, may be good insurance. One of them is bound to be a very strong winner!
Would be happy to hear views and see how some of these thoughts perform in the year to come.