Bottom-fishing and Speed-dating in India
INDIAN INVESTORS TEND TO BE EITHER GIDDY ABOUT THE MARKET, or totally bummed out. There’s no middle ground. So now, with Mumbai’s benchmark Sensex 30 stock index down about 30% this year, to 14,995 — from a Jan. 8 peak of 21,000 — they’re practically suicidal. Because the index gained 47% in 2007, with foreign institutions pumping in $17 billion — $1 billion less than the combined figure for the previous two years — 2008 has been a radical comedown.
The Securities and Exchange Board of India says that foreign institutions were net sellers of $3.6 billion worth of India-listed securities in the year to March 18, compared with net buyers of $1.1 billion for the corresponding ’07 period.
Deepak Lalwani, an India expert at London-based brokerage Astaire & Partners, hopes the market will let “all the froth blow off” over the next half year, when “most of the pain from subprime will have been smoothed out.” He says India’s markets had been “vulnerable to a blowout” since December, as valuations kept climbing, bucking global trends. But some analysts fret that India’s long bull run finally has ended.
Ved Prakash Chaturvedi, the head of Tata Asset Management, believes that India is already in a slowdown. He trashes the “decoupling” theory, which posits that strong stocks in fast-growing emerging markets will remain unscathed amid a U.S. recession. “We’re in a state of interconnected economies,” he says.
Meanwhile, analysts advise investors to steer clear of any company heavily dependent on exports, particularly to the U.S. So rule out the likes of Indian IT giants TCS, Wipro, Infosys and Satyam. They’re expected to see their revenue growth slow to 20% in the fiscal year to March 31, ’09, down from 35% a year ago. Veteran analysts are starting to eye historic markers with concern. Astaire’s Lalwani remarks that the Sensex’s last bull run started in April 2003, when the market was anchored below the 3000 mark, and trading at 11 times forward earnings. “I’m not sure the market will go down that far,” says Lalwani, “but between 12,000 and 14,000 would be a great point to buy back in and gain immediate returns.” The Sensex ended trading on March 19 trading a whisker below the psychological 15,000 mark.
Some point to potential bargains — but warn investors to tread carefully. Ranbaxy Laboratories’ (ticker: RBXD.India) global depositary receipts, says one analyst, have “performed well in downturns.” On March 18, it was one of only two stocks on the Sensex 30 index to rise. Analysts also highlight the GDRs of State Bank of India (SBIA.India), the country’s largest lender, and construction major Larsen & Toubro (LTOD.India) as ripe for a rise in the medium term. Others will surely be on standby until at least the fourth quarter.
STOCKS MAY BE IN FREE-FALL IN INDIA, but not everyone is hurting. Private-equity deals are surging, even as valuations on the Sensex plummet. In this bitter climate, the late February event at Mumbai’s Grand Hyatt couldn’t have been better-timed. Organized by local firm Yen Management Consultants, the India Private Equity Fair 2008 was basically a giant speed-dating event, bringing together 140 of the world’s largest private-equity firms with two dozen of India’s fastest-growing corporations. For many, it was love at first sight.
Each got six chances to pitch to investors. Most were companies with annual revenues of $20 million to $400 million and growing near 50% a year in niche industries: Karan Woo Sin makes hospital socks; Sagar Rubber makes medicine-stoppers. All needed more capital to break into the corporate bigtime.
Many fast-growing non-IT Indian companies are run by tight-knit families wary of tapping equity markets by going public, potentially losing control of the heirlooms. Private equity can be a viable middle way to gain working capital and fresh views on production and marketing.
Nice Close: As many Asian markets closed early for the holidays, Japan and Korea ended with gains.
The fair was a smash hit. Scads of private-equity majors sought out India’s brightest, with the Carlyle Group, CVC Capital Partners, General Atlantic, HSBC, Deutsche Bank, and India’s Tano Capital, Reliance Capital (RCFT.India) and ICICI Ventures all eyeing deals. Sunil Shirole, Yen’s managing director and CEO, says $800 million to $1 billion worth of deals were cut during and after the event
Like any good speed-dating event — and it did feel like one, right down to the nervous chit-chat, labored jokes and fervent attempts to make good first impressions — there were clear winners. Aroma Hi-Tech, which makes submersible pumps for agricultural use, has 12 funds set to invest in it and hopes to complete an initial public offering within a few years.
Some listed companies were there, too: Mumbai-based Responsive Industries (RESP.India), which makes flooring, expects to raise $300 million in private equity, $150 million of it from a first tranche over the next six weeks. Responsive’s Mumbai stock surged nearly tenfold in the two months to Feb. 19, but that price hasn’t factored in any private-equity injection. Prakash Industries (PKI.India), which makes PVC pipes (and whose shares were down 42% this year, through March 17) wants to raise $250 million. Finally, London AIM-listed Kubera Cross-Border Fund (KUBC.India) is expected to invest upward of $50 million, thanks to the fair.
Amit Shah, managing director of industrial-packager Wonderpack, found the private-equity crowd surprisingly courtly: “They asked lots of good questions…[it was like expecting] the bad kid to turn up to date your daughter, but who turns out to be an M.D.”
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