India taking over acquisitions


In 90’s when late P.M PV Narsimha Rao laid the foundations for freeing up of our economy, i heard too many people saying that our Indian corporations were not yet ready to face the competition. Much of that fear had to do with lack of equity, low quality production, huge pricing power due to no-competition etc. Indian companies then were not ready to give up their pricing power and ramp up quality production and thus were against (not really against, but forced the political leadership to go slow) opening up of our economy. However, Our country slowly started freeing up economy and fortunately too our companies had worked hard to grow on par with global standards.

Let us first list the recent star acquisitions.
1) Tata’s acquiring of Corus valued at $12.2 Billions
2) Hindalco acquiring NOvellis a canadian company valued at $6 Billion
3) Videocon acquiring Daewoo electronics valued at $1 Billion
4) Tata Tea acquired Energy brand valued at $677 Millions
5) Dr Reddy’s acquired Beta Pharm valued at $572 millions
6) Suzlon energy acquired Hansen Transmission valued at $565 Millions
7) Aban Lloyd acquired Sinvest valued at $425 millions
8. ONGC acquired Omimex De columbia valued at $425 millions
9) Ranbaxy acquired Terapia valued at $324 millions
10) Ranbaxy is also in talks with Merck for acquiring one of its subsidiary and is a multi billion dollar deal.

If we closely look at these deals they are from variety of market segments like commodtites, pharma, OIL and Gas, beverages etc. This is pretty much a healthy trend and is instilling a confidence among us that our Indian companies are scaling up globally. Just few years ago, we were looking upto microsoft, yahoo, oracle etc to start their development centres here. We were very much interested in having MNC’s here and it was talk of the country when A.P Chief Minister wooed Bill Gates with Power Point presentation to set up microsoft subsidiary in Hyderabad. Now all that changed, Indian companies are MNCs for West and rest. Indian companies now have moved off of their protectionist mindset to that of confident mindset. They have started acquiring companies abroad. How did all this change in a span of 10 years? The change we are witnessing now is very dramatic and sudden. What caused that change or what is pushing them to shun fear?

There are several factors and i know i will not be able to do a complete justice in highlighting the exhaustive list of factors.
1) Our nation is ever young atleast for next 50 years. This is definitely morale booster for Indian companies as this younger generation will be their customers for long.
2) Thanks to middle class families who have invested heavily in education. This created a large pool of educated masses and made our nation ever ready to face any challenge. We will continue to reap this for forseable future.
3) Thanks to our corporations, who have reaped rich dividends for long(with no competition at all in their space) and are awash with cash to invest and ramp up their productions on par with global standards.
4) Thanks to our government whic saw the coming global oppurtunity and slowly started replacing Red tapism with Red carpets.

Our nation had enough cylinders to fire and start the growth story, but it didn’t happen untill we witnessed the great recession of West. While the West was facing recession, the great brain drain from Indian shores starting paying off.
The talent which India was loosing in 90’s and up untill early 2000 gave the West a glimpse of India and its potential.
The outsourcing story followed and companies like Infosys became brand India for us and also for West. With no prospects in the Western economy the investors started stashing their money in India and believed the Indain growth story. Untill then India Inc had reasonable growth and gave its investors healthy returns. But, with investors continued confidence and pouring capital the stock market witneseed it’s peaks often and is at all time high today. With such investor activity, the Indian companies cannot give the kind of returns the market is expecting. With surge in Market capitalizations of Indian companies, they have no other option but to grow. The growth can be both Organic and In-organic. Organic growth(natural growth) is slow and will happen, but investors can’t wait that long to see it pay dividends. The only option left before the companies is in-organic growth and that is what we are witnessing.

The market is dictating and the Indian companies are delivering, so the growth story is accelerating at a pace which we didn’t expect. The investors are smart here. They are taking money out of West depressing the company stock there and are stashing it in India and forcing us to buy those deppressed companies in West.
What is actually happening is movement of money from West to East. The money hence will be in better hands and will see growth before it moves elsewhere. There is ample proof of this trend. Hindalco is much smaller in market cap compaed to Novellis and similarly Tatas too is small compared to Corus and still we saw deals going through only because institutional investors wanted it that way.

However, small investors like us should be mindfull of short term fall in stock prices as the stocks plunge due to such acquisitions.