Factoring Services Mooted for SMEs

The Ministry of MSME has mooted the idea of allowing financial Factoring services for Micro and Small Medium Enterprises. It is in discussion with Finance Ministry on proposal for factoring services.

Factoring services are still niche domain in credit financing in India and is largely domain of a few international banks, though financial institutions like SIDBI along with nationalized banks have undertaken study of providing factoring services to various small and medium enterprises.

Factoring services involves raising capital through leveraging its accounts receivable (credit sales) to gain access to cash. The financial institution providing factoring services uses its own mechanism to provide upto 80% of accounts receivable to the client. But, such kind of services is yet to take-off for SMEs.

The ministry is examining the legal and regulatory aspects on the proposal, which would require legislative amendments in terms of taxation and financing.

The credit-deprived Small and Medium Enterprises (SMEs) are likely to benefit from the concept 'factoring services' as it would be an alternative window for SME financing in India. Dinesh Rai, Secretary, Ministry of MSME recently motioned that the Ministry of Financial Services are not too much in favor of legislative support. But, he feels that if there is no legislative support, it will be difficult for SME players to attain success in a big way.

Personal Computers Manufacturers Facing Tough Market Scenario

Personal Computer market in India is facing tough times as the Q3 FY09 sales have dropped by 19% and market is expected to remain muted with no growth for overall FY09.

Personal computer sales for the period Oct-Dec 2008 stood at 1.4mn units down from the 1.7mn units a year ago. Amongst the personal computers desktops witnessed decline of 15% while sales of notebooks declined by 30%. Desktops constitute 70% of the total personal computer market and remaining is held by notebooks. Branded desktops player constitute over 60% of 5.1mn unit desktop computer market in India.

Consumption of personal computers in Oct-Dec quarter was largely led by sectors such as Telecom, Banking, education and e-governance requirement of central and state governments. But, declining demand was witnessed from sectors such as Retail, IT and SME sectors.

As large percentage of hardware component is imported, rising rupee has deteriorated the margins of personal computer manufacturers. MNC biggies such as HP and Lenovo together with Indian major HCL constitute almost half of the desktop market in India, and are facing pricing issues.

Personal computer manufacturers are expected to face rough ride ahead as economic downturn has already affected the individual demand for personal computers, corporates on the other hand are trimming not only expenditure on IT hardware but due to low capex spending in the near future they have restrained the demand for personal computers.

Montek and Chidambaram mock India’s Economic Scenario

Montek Singh and Mr. Chidambaram for past few days have been giving some really exaggerating statements about the economy. They continue to assert that Indian economy will grow at 8%. Now, how that suppose to happen. The global credit lending is expected to come down drastically during next year and India desperately needs it to continue its infrastructure and capex. Indian companies were already raising debt for international market as credit rates in India were high. How are Indian companies expected to grow at same rate in this inconducive economic environment? Plus they were quick to add how fundamentally strong Indian economy is.

How come economy be fundamentally strong where commodities are playing havoc to the economy, crude prices have endangered the aviation sector and is pushing inflation, housing boom is about to go bust with high credit rates and our exports are threatened due to global slowdown. They were not done yet, they made another comment on liquidity situation.

Yes there is liquidity problem, there are not many ready to lend to consumers and corporates are finding it hard to credit at lower rate (which is next to impossible). There is credit problem in the economy, but what about the money that FIIs have brought into the market by selling share and converting them into dollars! The problem, we don’t think is of liquidity in the capital markets but of leveraging and speculation on cheaply borrowed money. Now that it is difficult to leverage and get cheap credit there aren’t many players to do so in the stock markets. So, we have more and more selling and less numbers of buyers.

India’s CAPEX to drop significantly in 2008-09

In early ominous signs of things to come, a Reserve Bank of India (RBI) study has estimated that the capital expenditure (capex) in India by corporates may slow down by more than 30% in 2008-09. This expected drop in capex comes after four consecutive years of growth at more than 40%. As per the report, capex figures are expected to touch Rs 173,173 cr in 2008-09, drastically lower than the Rs 245,107 cr raised by companies in 2007-08.

In the last financial year, one of the key drivers of growth in capex was the Rs 442,000 cr worth of capital inflows of which 37% was in foreign debt, 27% was equity market-related inflows, 14% was net FDI and the balance 22% in other hybrid inflows. Major reasons for the drop is obvious the difficult of companies in raising fund overseas in the last six months, due to the global credit turmoil, following the sub-prime credit crisis in the US. The other major contributor viz. the local equity market has also been in doldrums in the past six months, with IPOs either not getting the required response or being postponed due to fear of under subscription. High inflation and a spate of interest rates hikes, has also led to slowdown in investment plans announced by industries?

Over the last three years, investments were made primarily in the automobile, cement, oil and gas, power, steel and telecom sectors. However, most of these sectors are unlikely to go for fresh expansion in the coming years on account of ongoing recession and price freeze by the government to control inflation. The cement, steel and sugar sectors are chief examples of industries that have been caught between rising input costs and disproportionate increase in realisation on account of price controls. The projected downside risk to growth in 2008-2009 has increased due to uncertain global conditions, primarily because of volatility in oil prices and capital markets.

However with India getting the waiver at the NSG, the future looks bright for the capital goods industries, which could prop up the capex figure with their investments. Even telecom sector could provide a boost with the advent of 3G services in India and the additional requirement of infrastructure for the services.