This is a race against time to prevent a global financial collapse, and on Tuesday, the clock was ticking louder than ever. Markets went into a tumble — with Wall Street slumping more than 4%, its worst loss since the immediate aftermath of 9/11, seven years ago. Policymakers went into a huddle. And investment bankers gathered in droves — on social networking sites and at offline watering holes — to rage against the seismic change in their fortunes from ‘masters of the universe’ (to quote bestselling author Tom Wolfe) to a tribe living in fear of the pink slip.
   Already shaken by the bankruptcy of Lehman Brothers and the sale of Merrill Lynch, markets tanked further as major credit rating agencies downgraded US’ largest insurer American International Group (AIG), leaving it fighting for survival. The company, whose stock plummeted 61% to $4.76 in New York on Monday, is such a big player in insuring risk for institutions around the world that the prospect of it going under raised fears of a cross-border meltdown.The London and Tokyo markets tumbled more than 4% on Tuesday, hitting their lowest levels for more than three years.
   Central banks hit back,
with the Federal Reserve, European Central Bank, Bank of England and Bank of Japan together injecting $210bn into money markets. But the Fed stunned the market by holding interest rates steady, dashing rate cut hopes and sending the Dow sliding again. The Dow had earlier steadied on hopes that the government would bail out AIG and that Barclays would buy some US assets of Lehman.
   In India, AIG has two insurance joint ventures with the Tatas — Tata-AIG — one for life and another for general. IRDA on Tuesday said according to accounts on March 31, 2008, both companies ‘‘have satisfactory solvency margins which are adequate to meet their liabilities’’, but following the US crisis, it has asked them to submit reports.
   The fear of a global slowdown drove oil prices to below $90 a barrel, down almost 40% from the record high of above $147 per barrel in July. Unfortunately, the declining rupee means this benefit is unlikely to reach consumers.
   The rupee seems to have gone into free fall, all but touching 47 in the course of the day. It posted its
   sharpest fall in a
   decade on Tuesday, closing another 82 paise lower against the dollar, at 46.88, after touching a low of 46.99. RBI late Tuesday evening issued a statement saying it ‘‘stands ready to take such pre-emptive action as may be necessary to contain excess volatility in the domestic financial markets’’. It vowed it would continue to sell dollars and intervene directly in the forex market even as it announced a slew of measures like increasing interest rates on foreign currency deposits.
    A finance ministry official was quoted as saying the US crisis could impact FII inflows. There are other indications that the American storm could rain on India Inc’s parade. ICICI Bank is in danger of taking a Rs 375-crore hit due to Lehman Brothers going bankrupt. Banking sources claimed SBI and PNB had also suffered losses, though the banks did not confirm this.
   With Lehman, Merrill Lynch and AIG having substantial exposures to real estate in India, realty companies might find themselves even more cash-strapped. With some large projects at risk of being put on hold, a price correction might be seen in some major Indian cities.

GLOBAL WARNING


   Dow drops over 500 points on Monday night, steadies on hopes of a govt bailout of AIG, then plunges as Fed keeps rates steady
   IRDA asks Tata AIG ventures to submit reports about solvency. Policy-holders seem to be safe for now
   Rupee drops to 46.88 against $. RBI says it’s ready to do whatever it takes to stem fall
   Crude prices drop below $90/barrel, but Re decline makes oil price cut unlikely
   Real estate firms could struggle to raise cash. Price correction may be on cards

India Inc's growth story got a further jolt on Tuesday, with business sentiment and investment climate set to take a big knock in the wake of the financial turmoil in US. After the US financial market turned upside down on Monday, with Lehman Brothers filing for bankruptcy, AIG scurrying to find fund to stay afloat and Merrill Lynch being sold out to Bank of America, the implications of the crisis were still sinking in here.
   As a direct impact of the US meltdown, the access to funds for domestic companies across sectors will get adversely affected, while plans to raise capital through initial public offering as well as foreign exchange debt will be put on the back burner.
   "The impact of the US financial markets has a direct co-relation to our banking system. Therefore, liquidity, growth rate, appetite for risk and ability to borrow in India will all be impacted. In US, there will be a liquidity crunch, risk aversion and cross border transaction. This would have a definite, though short term, impact on business and financial sectors with demand for investment, flows and investment confidence hitting a low," Ficci president Rajeev Chandrasekhar told TOI.
   "While the business sentiment here has on a low for a while, the fears of a slowdown got accelerated today further. Across all sectors, access to liquidity has been significantly impacted by the ongoing financial crisis. This will affect growth plans of corporates, business investment, jobs, real estate and economic growth," added Sujay Shetty financial advisory services, PricewaterhouseCoopers India.
   Sectors likely to be hit hard on account of lack of funds are power, infrastructure and real estate, which were planning huge expansion projects, banking experts said. "In the short-term, capital will become scarce. It will slow down expansion and acquisition by India Inc," said Ravi Sardana, senior V-P, ICICI-Securities India.
   Also, the days of big-ticket acquisitions for India Inc are over for some time. India Inc, which had been on an acquisition spree over the last couple of years, may find it difficult to go in for organic growth. Most companies said that they would adopt a wait-and-watch strategy going forward. According to Future group chairman Kishore Biyani "We will only go in for acquisitions which make sense and present a good opportunity."
   Glenmark Pharma director finance Rajesh Desai said: "Even though the pharma industry is relatively recession proof and valuations will be more reasonable, going forward, I think the global liquidity crunch will put pressure on big ticket acquisitions. However with valuations becoming more reasonable, I think Indian companies will continue to look out for smaller companies or niche acquisitions depending on their strategy.
   To add to the woes, the rupee ended at a twoyear low of 46.89 against the dollar on concerns of asset outflows from the equity markets in emerging economies on Tuesday. Companies, which have borrowed in dollars will find it challenging to service their debt, with their interest payments rising substantially, putting further pressure on their profitability.

The fate of Tata group's foreign insurance partner American International Group's India operations hangs in balance with its US-based parent body — the world's largest insurer — itself looking for protection cover.
   AIG has stated that it would sell its assets to raise $20 billion but its survival depends on additional funding. This, however, is difficult to come by thanks to the raging global financial crisis. It remains to be seen whether India would be a part of this sale process. AIG first entered India through its private equity business 15 years ago, followed by insurance in 2001 and later expanded into asset management, software development, consumer finance and real estate fund.
   It holds controlling interest in most of its businesses except insurance, where it is a minority stakeholder with 26%. The Tata group holds 74% each in the life and non-life insurance venture.
   Unlike AIG officials, Tata AIG executives seem to be unfazed, despite the churning at AIG's global headquarters. This is because, a Tata-AIG executive says, of the strong support of the Tata group.
   In a similar but unrelated development, the Tata group had bought out its foreign partner T D Waterhouse's stake in the securities venture in the early 2000s when the financial group decided to concentrate on its main markets and not India. 

   Tata AIG Life and Tata AIG General Insurance--both regulated by IRDA--are well capitalized and completely solvent, said a market source. The insurance venture is AIG India's biggest business. The solvency margin, which stands at 150%, determines the insurer's ability to pay claims.
   If additional capital is required to maintain the solvency margin and AIG is not in a position to meet it, then the Indian venture could see a change in structure. Also it would be interesting to see what stand AIG would take if FDI were increased to 49%.
   AIG also has a JV with National Housing Bank, International Finance Corporation and Asian Development Bank to set up a mortgage guarantee company and has even applied to the RBI for the same. Industry sources said expansion across various business segments, including future of the mortgage guarantee firm, would depend on AIG getting a financial aid. AIG group employs 11,500 people, including its Chennai-based BPO outfit. AIG's PE fund has made investments of $700-750 million, while AIG Global Real Estate has invested close to $250 million in India.