Tuesday, January 6, 2009

Stimulus II- sectoral approach

As compared to the Stimulus I that cut across every business segments by
reducing Cenvat by 4%, Stimulus II is trying to address certain specific sectors
like infrastructure, real estate, CVs, metals and cement. It not only provides for
funding through NBFC/bank/ECBs but also charts path for NBFC/banks to raise
finance. The issue in the current sluggish economy is availability of finance at a
reasonable cost. The freedom provided to real estate companies to raise funds for
integrated townships look very positive apparently but is very difficult
considering the fact that the ECB finance is dried out. Depreciation benefit to CV
companies may not improve the demand but it can certainly reduce inventories.
Any move to help the industries by using PSU banks line of credit would benefit
the relevant sectors but could raise a question on quality of assets of the PSU
banks and the history on similar moves have not been very encouraging for PSU
bank’s health. The role of infrastructure NBFC and IIFCL will be crucial for the
growth of the sector. We might see some announcements from large industry
players to form infra NBFCs.

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