The recession or slowdown, call it what you will, is spreading its tentacles wider. Anecdotal evidence now extends to placements across B-schools.

Many respectable management institutes are struggling to maintain placement records in what is being acknowledged as the worst global recession since the 1930s. 

Coveted i-banking jobs are no longer available for the good reason that many of those financial institutions no longer exist. Compensation has dropped across the board.

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Offers to the 2008 batch of MBAs range 25-50 per cent lower than in 2007.

What has been shocking is the sheer speed of the decline. Corporate results suggest the first quarter of 2008-09 was more or less flat, the second quarter saw a slide, Q3 promises a deluge of red ink and Q4 could be even worse.

However, the speed of the decline in itself is encouraging. Even the worst recessions and depressions do end. This happens when prices fall enough for demand to revive and markets to clear. If the crash is in slow motion, there may be years of agony in store. If it must happen, better that it happens quickly.

This crash was caused by a dramatic liquidity crunch sparked by a series of American financial engineering experiments that bordered on the careless and sometimes went well beyond into the criminal.

In the wake of the subprime bubble, several other disasters have come to light. The latest is the Madoff scam, which is shaking the NGO universe.

The repercussions from that, coupled with the abortive bailout for US car-makers, should ensure interesting times for the new administration that takes charge in a few days.

There are silver linings. The drop in crude oil prices and low demand has led to a sharp fall in inflation.

That, in turn, means that Indian government finances will not be stretched quite as badly as we imagined when the WPI was in double digits and crude oil was above $140/barrel.

RBI now has room to cut rates further and rate cuts should be beneficial to both equity and debt portfolios.

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In the short to medium run, debt funds remain a potential source of return -- commercial rates can slide a long way from current levels once banks start cutting and they haven't yet.

In the long run, equity has to be the best instrument for high returns because valuations are already looking fair to good. However, different industries will recover at different rates and 2009-10 will almost certainly be a bad year for earnings-watchers.

Companies from defensive sectors are the ones still turning up in large numbers at B-School placement melas. Broadly, that means the usual suspects in FMCG and pharma.

While finance and IT are currently in bad shape, these industries are likely to see quick bounces.

If nothing else, the Indian economy is under-penetrated by these industries and on the basis of 'any port in a storm', Indian companies may seek opportunities here.

Housing, real estate, various infrastructure segments like aviation and energy, and the engineering and construction industry, which is dependent on infrastructure projects, are all far more exposed.

These are industries that are shedding jobs at great speed and projects are stalling due to inability to manage financial closures.

However, these are all rate-sensitive sectors. So the environment is better than it was two or three months ago. This is true for automobiles and other consumer-driven businesses as well. Lower rates and lower fuel prices should generate some demand and lower input costs due to falling steel prices cannot hurt.

Market watchers often repeat a truism that has some statistical evidence in its favour. The stocks that crash the hardest during recession are the ones that offer the most returns in the subsequent bounce. If you buy that argument, you will want to buy the most beaten-down stocks, not the ones that have displayed defensive strength.

This worked well in the past few bear markets with one caveat.

There's selection bias involved. Some of the stocks that crash during a recession never recover.

The businesses that last out the tough times do tend to come back stronger. The odds for this strategy will become better if it's implemented once Q3 results are in.

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