"India has the resources and expertise to tide over the global economic crisis and sustain 8 per cent growth...", said Manmohan Singh, our Prime Minister with the added caveat "...provided we have the imagination and will to work together". The BJP prime minister in-waiting LK Advani had other thoughts and said that "India" needs a strong leadership and a strong government, which has both the capacity to overcome the current crisis and also a clear vision to resolutely pursue long-term goals". While he may be right to an extent about the present government with regard to its profligate fiscal policies and the narrow view of its monetary policy response to inflation, the response to the crisis by a Congress-led UPA appears to be the lesser of the two evils.As the credit crisis continues its dance of death in the global financial system, Indian stock markets are back to where they began their heady climb three years ago. While oil has dipped to the $50 per barrel level, the rupee has depreciated to a level not seen in the past, now hovering around the $50 mark. Thus oil marketing companies are still bleeding even as the UPA government comes under increasing pressure to reduce retail prices in view of the upcoming parliamentary elections. At a time when a bipartisan approach is needed, the level of partisanship and regional chauvinism appears to be testing newer and more dangerous heights with players of all hues use brinkmanship to highlight caste, religious, linguistic or other difference to split the electorate.
There is heightening perception that rate cuts will not prevent India's corporate earnings growth from significantly cooling off. Confidence levels of companies about business prospects have declined with several companies resorting to lowering capacities and trimming staff in anticipation of lower demand. Even though the finance minister is confident of a return to 9% next year, market participants are not convinced, with a broader consensus being 6-7%. At this growth rate, the premium in share valuations which Indian companies have commanded in the recent bull-run could erode further. The global perception that emerging markets should trade in single-digit multiples could present some more downside risk to Indian equities. With the Sensex trading at 8.5 -9.0 times 2009-10 estimated earnings, though at higher valuations compared to other emerging economies makes it vulnerable to further downgrades as there is still a lack of clarity about the extent of the economic slowdown.
I have been using this newsletter to deal with macroeconomic and political factors of business performance. From this issue onward, I will begin to touch up the topic of Business Performance Management , our core area of expertise. I will be looking at performance management practices, frameworks, tools and software packages out there and the state of the art in management thinking with respect to the elements of business performance - strategy, structure, culture, process and systems. This week, I pick up on an article on the SCP framework in the McKinsey Quarterly that I read just earlier.The SCP (Structure-Conduct-Performance) model is an interest tool to analyze businesses striving to compete within a market[McKinsey Quarterly, Jul 2008]. "The model's original form depicts the influence of an industry's structure (for example, the growth of demand and barriers to entry) on the conduct of producers (pricing, for example) and the performance of both the industry and the producers. The the 1980s, McKinsey suggested an extension that added a dynamic element to a static framework. the dynamic version suggests that the relationships among structure, conduct and performance are not unidirectional; they flow in the opposite direction too. This approach allows companies to consider the influence of their own conduct on an industry's structure and ultimately, on
their own performance. Many companies use the revised model to play through various scenarios that might affect them, to gain an understanding of what's happening in their industries and to develop their strategies." An interesting case study would be the present behaviour of the Airline industry in India that has just completed the first phase of consolidation.
There is heightening perception that rate cuts will not prevent India's corporate earnings growth from significantly cooling off. Confidence levels of companies about business prospects have declined with several companies resorting to lowering capacities and trimming staff in anticipation of lower demand. Even though the finance minister is confident of a return to 9% next year, market participants are not convinced, with a broader consensus being 6-7%. At this growth rate, the premium in share valuations which Indian companies have commanded in the recent bull-run could erode further. The global perception that emerging markets should trade in single-digit multiples could present some more downside risk to Indian equities. With the Sensex trading at 8.5 -9.0 times 2009-10 estimated earnings, though at higher valuations compared to other emerging economies makes it vulnerable to further downgrades as there is still a lack of clarity about the extent of the economic slowdown.
I have been using this newsletter to deal with macroeconomic and political factors of business performance. From this issue onward, I will begin to touch up the topic of Business Performance Management , our core area of expertise. I will be looking at performance management practices, frameworks, tools and software packages out there and the state of the art in management thinking with respect to the elements of business performance - strategy, structure, culture, process and systems. This week, I pick up on an article on the SCP framework in the McKinsey Quarterly that I read just earlier.The SCP (Structure-Conduct-Performance) model is an interest tool to analyze businesses striving to compete within a market[McKinsey Quarterly, Jul 2008]. "The model's original form depicts the influence of an industry's structure (for example, the growth of demand and barriers to entry) on the conduct of producers (pricing, for example) and the performance of both the industry and the producers. The the 1980s, McKinsey suggested an extension that added a dynamic element to a static framework. the dynamic version suggests that the relationships among structure, conduct and performance are not unidirectional; they flow in the opposite direction too. This approach allows companies to consider the influence of their own conduct on an industry's structure and ultimately, on
their own performance. Many companies use the revised model to play through various scenarios that might affect them, to gain an understanding of what's happening in their industries and to develop their strategies." An interesting case study would be the present behaviour of the Airline industry in India that has just completed the first phase of consolidation. As shown in the chart, despite a reduction in ATF over the past four months, domestic airlines have not reduced the fuel surcharge of Rs 3100 per sector compared to Rs 1350 last November, even as the price of fuel has come down to Rs 39,767/kl from Rs 41,417/kl last November. That implies passengers are forking out nearly Rs 1750 more as fuel surcharge on every ticket despite government action to abolish customs duties and provide for extended credit period for payment of fuel bills.
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