Reforms effect: Firms looking at global acquisitions

Economic reforms started in 1992, after fiscal profligacy forced the government to take desperate measures like pledging the country''s gold, to come out of a crisis of its own doing. It also forced some common-sense thinking among bureaucrats and politicians, opening up the economy to competition and reducing tariff barriers that protected domestic industry at the cost of domestic consumers.
In first dozen years of reform, the corporate sector has gone on treadmill and shaped up cost-cutting to become lean and mean.It is now confident enough of strengths to go on a global acquisition spree, a very welcome development.
ONGC Videsh has bought out a half share of Shell in an offshore block in Angola, from Shell, for $600 million. Through this fully owned subsidiary ONGC is going aggressively into acquiring oil reserves to compensate for the reduction from Bombay High. The stock has performed well and, thanks to its larger free float, is likely to enter MSCI index. Its weight in free-float adjusted BSE has gone up after the float has increased.
India''s largest commercial bank, SBI, is looking to acquire a US Bank. Once the notification to reduce government holding in PSU Banks from 51% to 33% is issued, there would be a spate of M&A activity among banks in India. The bigger, more pro-active banks, have started to prepare for it. Foreign investors have taken to investing in some smaller, southern banks, in anticipation of this.
Bharti Tele has acquired 68% in Hexacom and completed a $100 million FCCB issue. Despite conversion of bond into equity at a 40% premium to prevailing price, there was a tremendous response, with demand for $1 billion. This indicates appetite for Indian paper and matching confidence of foreign investors in Indian corporates.
Not all acquisitions are one way; IBM acquired BPO major Daksh at an undisclosed price. This is good news, for it helps mitigate politically generated noise in the US on outsourcing. On the other hand, L&T Infotech is in race to acquire BPO unit of General Electric.
Investors in primary market have recently been rewarded on strong shows at listing. Biocon, India''s first listed company in biopharma, ended the first day with a 54% gain over its offer price of Rs 315.
Power Trading, whose listing was delayed, was up a whopping 179% over its offer price of Rs 16. Among interesting forthcoming issues will be that of thermal power major, NTPC, which is set to offload 5% of its equity in August. It is also issuing bonds in foreign markets to raise Rs 3,000 crore.
More than industry, swing in agricultural income is contributing to the growth in GDP, which finance ministry has pegged at 8.1% this year. The worrying factors are, and remain, fiscal profligacy of government and slowness of judicial system, as pointed out by international rating agency S&P. Unless next government takes steps to rein in fiscal deficit it is very likely we may end up with a 1992-like crisis situation, though not in the immediate future. Quirks of law can be seen in the fact that NSE has hauled up those who were mistakenly over-allotted ONGC shares, for short-selling them! Consistency and fairness in application of law is a quintessential part of a truly global economy and we are yet to learn this.
Such as in absurd contention by I-T department to disallow tax-free status u/s 10A and B, as they are entitled to. Or in elbow room to debtors, allowing them to appeal without depositing 75% of dues, as was required. Given time taken for matters to be heard, this is negation of SARFESI Act, as borrowers would keep appealing on frivolous grounds, to avoid their assets being seized.
The Sensex rose 50 points to 5,838 last week, backed by sustained interest from foreign investors. It should continue to do well in run-up to elections. Industry is performing well, and corporate results are soon to start being declared. Any dip should be a buying opportunity.