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Obamanomics to take centre stage - Views on News from Equitymaster
 
 
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  • Jan 21, 2009

    Obamanomics to take centre stage

    Worsening economy greets the new US President
    The dust is finally beginning to settle. Barack Obama, the 44th US President took his oath of office yesterday and as was expected of him, gave an articulate enough inaugural address. But the time has now come to transform his words into action. A nation, whose economy is the worst it has been in many decades, is looking upon him as a beacon of change. And he will have to quickly set the ball rolling.

    Dark clouds have begun to reappear on the global economic horizon as fears of a deepening financial crisis sent shivers down the Asian stock markets yesterday and the sentiment today has been equally bad, with most of them trading in the red. In fact, the US markets also traded deep in the red yesterday and closed to a two-month low as investors chose to pick a badly bruised economy over Obama’s inaugural ceremony.

    The US$ 850 bn stimulus package might be the only last chance he may have and if it does fail to have the desired effect then even his hands would be severely tied in the future years on account of the huge deficits that would have piled up by then. Here’s wishing him all the best.

    Hero Honda’s positive surprise
    Hero Honda, the first auto bellwether to go off the blocks in the current result season, beat the street estimates and has posted a 9% YoY growth in profits during the quarter. This was on the back of a 5% growth in topline. Although volumes suffered a decline of 4%, it managed to extract higher price per unit of two-wheeler sold on account of a better product mix as well as strong realisations. Operating margins also showed a marginal improvement, edging higher by 0.3% as compared to corresponding quarter of the previous year. Certainly, the auto industry, crushed under the weight of economic downturn and tight liquidity squeeze could not have asked for a better start.

    Realty is deeper pain
    Things are not likely to be hunky dory on the realty front. As per a leading daily, most of the major real estate companies are likely to report sharp fall in both revenues as well as net profits during the September-December 2008 quarter as low demand, falling prices and high financing costs have plagued the industry during the December quarter.

    Most of the problems are of the companies’ own making as a boom in real estate in the three years preceding the December quarter led them to the belief that prices will continue to rise forever. The optimism and the greed of making a fast buck made them leverage their balance sheets to the hilt. But the drop in cash flows has been so sudden that the servicing of debt has become a problem. They have been left with no other option but to liquidate their assets at lower prices and incur a steep fall in profits. Hopefully, better sense will prevail next time around.

     

     

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