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Recovery a long way off

May 5, 2009

Buffett's take on the economy and Berkshire
When the Oracle of Omaha Warren Buffett speaks, the world listens with rapt attention. Hence, when the chairman and CEO of Berkshire Hathaway says that he has seen no indication of recovery from the real estate slump that helped cause the US recession, it certainly gives investors something to chew upon. Earlier in the week, Paul Volcker, one of Barack Obama's economic advisors, had said that the US economy was 'leveling off at a low level' and does not need a second fiscal stimulus package after the US$ 787 bn package signed by Obama in February. To which, Buffett has this to say, "You never know for sure, even if there's a leveling off, which way the next move will be." The worst financial crisis since the Great Depression has not spared anybody including Buffett, which was amply reflected in that Berkshire reported five straight quarters of profit declines.

Moreover, ratings companies have downgraded the company, a development that has not unduly worried Buffett as Berkshire does not really have much debt on its books. Indices over the world have seen a rally of late but unless and until there are some concrete signs of economic revival, the current rally may not be sustainable. And if what Warren Buffett has to say about the US housing market is true, the world is still a long way off from a significant economic recovery.

Pharma's mixed quarter
Pharma companies started declaring their results last week onwards and these have not been too enthusing to say the least. As was the case in the December 2008 quarter, many domestic players were mired in forex losses in the March 2009 quarter as well. Barring that, while companies like Cipla did well operationally, Ranbaxy took a further beating. Ranbaxy's miseries which began last year showed no signs of abating in the March quarter and poor performance across geographies coupled with forex losses pushed it deep into the red.

The economic slowdown did have some impact on companies such as Piramal Healthcare and Biocon in terms of lesser outsourcing from global pharma companies and lesser licensing income but this scenario is expected to get better in the coming quarters. Many more companies are yet to report their results and a clearer picture about the sector will emerge only then.


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