Industry’s worst fears seems to be coming true. There is increasing apprehension among Indian firms that the current global meltdown might snowball into a full-blown crisis and last at least till the end of 2012.
Many Indian companies are holding on to cash balances as ripples of the meltdown spread across major European economies, the survey said.
An increase in cash balances typically implies that corporates are deferring their investment plans for better future opportunities. Alternatively, when credit is scarce, or is expected to be scarce, firms hold on to more cash to meet any potential eventualities.
“This trend is akin to 2002-03 in the aftermath of the dotcom bust and the World Trade Centre attacks in the US,” the survey said.
Within the sample of companies surveyed, sectors such as metals, cement, food and beverages reported the maximum increase in cash balances.
“It is also possible that as a result of the monetary tightening cycle that began in March 2010, sectors such as construction are beginning to feel the pinch,” the survey said.
The respondents include member associations of FICCI and individual companies, and the survey was conducted in the months of September and October 2011. It drew responses from a wide array of sectors ranging from heavy engineering to textiles.