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Corporate strategies that keep Indian companies bullish in the face of global recession

, January 23, 2023, 0 Comments

The signs of a global economic downturn can be observed in historically high inflation in many global markets, fueling recessionary fears. The Russo-Ukrainian war and aggressive interest rate hikes to curtail inflation have resulted in sluggish economic growth. However, the fifth largest economy, India, is setting the stage for a different story.

India’s economy is thriving on the growth and resilience tendencies of consumption-led sectors amid war, inflation and supply chain disruptions. Relative to the global economy, India’s economic outlook is insulated by the recent monsoons, the uptick in manufacturing and services, and the stabilization of inflationary pressures.

The International Monetary Fund (IMF) released the World Economic Outlook report in October 2022, where the global growth forecast is lowered from 6 per cent in 2021 to 3.2 per cent in 2022 and 2.7 per cent in 2023. This is the worst trajectory since 2001, except for calamitous events like the global financial crisis and the Covid-19 pandemic, and reflects significant downturns for the advanced economies.

Amidst the uncertain fate of a global economy, India fares relatively well with a highly nuanced ecosystem that operates across three clusters. There is rural agricultural India that sustains at the mercy of rains, Tier 2 India that connects rural hinterland to urban markets, and urban India, which suffers a visible hole in their pockets due to inflation, lower incomes and unemployment. Given the size of the domestic market and the decoupled nature of the Indian economy, S&P estimates that India is unlikely to be significantly impacted by the expected global recession. Despite the mounting fears of global recession, India Inc. bode strategically well, keeping the ecosystem buoyant. The volatility across sectors is dealt with the help of supply chain diversification strategies, the digital economy, the hybrid working model and the clean energy transition.indian-corporate-strategies-recession-marketexpress-in

Economic forecast: 2023. The global growth projections have been lowered to 2.7%.
(Real GDP growth, annual per cent change)
Source: IMF Data Mapper

A dwindling global economy and interest rate hikes prompted OPEC+ to cut oil production output by 2 million barrels per day (bpd), constituting 2 percent of global supply. For a country like India, which depends significantly on crude oil imports for over 85 per cent of its energy requirements, these events can have an ominous impact on the production cost, warehousing, and transportation. The energy companies in India are, however, confident to navigate the supply chain crisis given the tax reductions on domestically produced crude oil amid fear of diminishing fuel demand as China imposes extensive Covid curbs.

The Covid pandemic knocked down aviation and hospitality sectors like its worst enemy, with sealed borders and restrictions on travel. However, now the sectors have bounced back, with air traffic moving both inwards and outwards, recording 15.9 per cent growth in foreign tourist arrival and 14.4 per cent growth in domestic aircraft movement. After an indelible dry spell, Indian aviation is ramping up with the launch of Akasa Airways, the takeover of loss-making national carrier Air India by the Tata Group and an upswing in demand for business and leisure travel. Even though the volatility in fuel prices and the depreciating rupee surged airfares, these pressures are expected to wane, and with the onset of the festive season, Indian airlines will soon return to profitability.

Another sector bearing fruits of the festive season is e-commerce. Major e-marketers such as Flipkart, Amazon, Meesho, Myntra, Ajio and Nykaa reined their festive spell by netting more than 50% of the total festive sales. Online marketplaces have capitalized on the growing user base from Tier 2+ markets by offering affordability and accessibility. Meesho has become one of the fastest growing online platforms by gaining maximum participation of users and sellers from non-metropolitan cities, successfully navigating localization. E-commerce companies have also stepped ahead to meet cultural expectations by introducing regional languages for customers, where they can set their preferred language. These companies have drawn a strong positive sentiment for the sector by building brand preference amid high inflation.

Alternatively, the capacity of Indian companies to withstand the pressures of rising rates and inflation is reflected in their credit profiles. Rated companies in India are better cushioned to tackle the anticipated recession primarily due to the strategic deleveraging and steady upward trend in operating performance over the past two years. According to the S&P Global stress test conducted for roughly 800 unrated companies in India, representing USD 570 billion in debt, credit profiles are expected to get worse for companies with more than 20 per cent of the analyzed outstanding debt. Indian companies are cutting down their interest costs and paying off debts as the business environment is expected to worsen due to the rising cost of capital in a high interest rate scenario.

Furthermore, India’s IT sector exhibited unwavering resilience and continuous growth backed by digital strategies amid remote working and greater dependence on technology. The IT ecosystem is currently presented with an array of growth opportunities in metaverse, artificial intelligence, 5G, drone and satellite imagery. Even at the cusp of a recession, banks and financial services firms set strategic priorities to spend on digital transformation and cloud adoption. Technology spending has been a consistent part of strategic investments among Indian companies, securing the benefits of automation and efficiency through cost optimization and digital acceleration.

With the easing of supply-side pressures, IT firms are bringing down the attrition levels that had once alarmed analysts. The pressure to poach experienced talent is settling down across the industry. India’s largest IT services company, Tata Consultancy Services (TCS), made net additions of 9,840 employees during the last quarter, with a closing headcount of 6.16 lakh professionals. In the US, many tech firms have laid off thousands of employees in 2022 alone and put halts on hiring. This cost optimization approach of US and European companies offers outsourcing gains to Indian service providers, which offsets any downturn that tech companies may encounter.

Notwithstanding the inflation pinch, Indian companies are keeping afloat, anticipating accelerated growth in the next few quarters as customer sentiment and discretionary purchases are on the rise. Their strategic know-how has upheld them amidst looming fears of recession as they continue to show endurance and growth.


The opinions expressed in this article are the author’s own and do not reflect the view of MarketExpress – India’s first Global Analysis & Sharing Platform or the organization(s) that the author represents in his personal capacity.