The power of 21
Clifford Alvares and Mahesh Nayak December 25, 2007
Events that rocked the business world—or just made head honchos sit up and take notice.
Towards the last week of October 2007, Market Regulator Securities and Exchange Board of India announced new regulations on participatory notes (PNs). SEBI asked sub-account of FIIs— both corporate and proprietary—to wind up P-Notes for investing in derivatives within 18 months.
Out goes ULCRA
After deferring from one assembly session to another, the Maharashtra government on November 29, 2007, finally scrapped a law that controls urban land holdings, potentially freeing up large tracts in Mumbai and around Maharashtra for housing and construction.
Get that certificate
The Securities And Exchange Board of India has made it mandatory for all market intermediaries to obtain a qualifying certificate from the regulator going forward.
Market intermediaries celebrate another record
This has been the fourth successive bumper year for market intermediaries. Trading volumes jumped a whopping 65 per cent year-onyear and the dollar value of trading has more than quadrupled in four years, thanks in part to the big increase in share prices.
More AMCs enter India
A number of new mutual funds opened shop, with JP Morgan Asset Management Company and AIG Global AMC launching new funds. Besides, the Shinsei Mutual Fund, Japan and the Korean Mirae Asset Management along with domestic entity Bharti AXA Mutual Fund have flagged off operations. UBS acquired Standard Chartered Mutual Fund for Rs 659 crore, Dutch-based Robeco Groep NV picked up a 49 per cent stake in Canbank MF and US-based hedge fund Eton Park bought a 4.8 per cent stake for Rs 501 crore in Reliance Capital Asset Management.
TCS wins biggest deal from NielsenIn October 2007, TATA Consultancy Services (TCS) won a $1.2-billion contract from Nielsen Company (the world’s leading provider of consumer and media information services).
The milestone deal is the biggest deal ever won by an Indian IT company. The deal announced by TCS is bigger than the $1-billion deal announced last year by Punebased Tech Mahindra, a tech services provider to telecom customers, and BT Group Plc., for a period of five years. Under the 10-year agreement, TCS will assume responsibility for important IT and operational processes and help Nielsen integrate and centralise multiple systems, technologies and processes on a global scale. TCS also will assume responsibility for certain finance and human resource business processes, which will be executed on new BPO platforms built by TCS.
SEBI allows funds to short sell
On March 22, 2007, the market regulator at its board meeting allowed short selling by both domestic and foreign institutional investors. This would allow mutual funds to sell stocks that are not owned by the funds in the hope of buying them later at a lower price and borrow and lend securities. In December 2007, the regulator, to kick start the corporate bond market, allowed companies to raise funds by issuing junk bonds or those bonds below investment grade through public or rights issue. These bonds are usually issued by corporates that do not have any option of raising money from the market and bear high risk as they carry below investment grade rating, thus increasing the risk of losing money. These bonds are usually purchased for speculative purposes, as it works on the principal of high risk, high return.
Subprime spoils the party
Lending in the US housing market to people with poor credit profiles took the wind out of Wall Street that resulted in money being sucked out of markets worldwide. The collapse in the US subprime market, which is larger than the Indian economy, also didn’t spare the Indian market that saw nearly $2 billion being pulled out by FIIs in July-August 2007. But the money returned in the next month, as FIIs didn’t find any other destination to park their funds. Many hedge funds went bust due to the US subprime crisis, with many losing their jobs. Since July 2007, world’s biggest banks and securities firms—Citigroup, Morgan Stanley, Merrill Lynch, UBS, Bank of America, Bear Stearns, Lehman Brothers and JPMorgan Chase—have written off more than $54 billion due to the subprime market collapse.
FIIs keep the tap open
India dominated the secondary market emerging market flows as FIIS pumped more than $16.5 billion (till December 15, 2007) into Indian equities.
Media’s day out
The Year 2007 saw several new launches and new players entering the Indian media and entertainment industry. To begin with, Peter Mukerjea, the erstwhile CEO of Rupert Murdoch-promoted STAR India, announced his exit to start his (Ok, his wife’s) own media venture INX Media, which will launch a slew of entertainment channels and news channels.
India Inc. crosses the border
M&A activity has moved a notch as Indian conglomerates trained their eyes on overseas companies. According to Grant Thornton, the total number of M&A deals announced during 2007 (till December 15) stands at 661 with a total announced value of $51.17 billion as against 480 deals with a total announced value of $20.30 billion in 2006. Of the total 661 deals, 348 were cross-border deals valued at $48.34 billion. Of these, 240 were outbound deals with a total value of $32.73 billion. In 2007, the average M&A deal value was $77.42 million, while the average value of cross-border deals was $139 million, which was significantly higher as compared to average value of domestic deals at $9 million. Tata-Corus, Hindalco-Novelis, Suzlon-Repower and the Ruiapromoted Essar Steel Holdings-Algoma deals accounted for over 65 per cent of total cross-border outbound M&A deals during 2007.
On the boil
Gold and oil, the hottest commodities, surged to an all-time high. Brent crude on the NYMEX touched a high of $99.29 per barrel on November 21, 2007, just a shade short of the three-figure mark of $100 a barrel.
Hollywood meets BollywoodThe Hindi film industry in 2007 saw a defining moment with the large Hollywood Studios now eyeing the industry to co-produce Hindi films. The beginning was made with Sony Pictures Entertainment’s Indian arm, SPE Films India. SPE Films co-produced its first mainstream Hindi cinema Saawariya with Sanjay Leela Bhansali Films with a budget of approximately Rs 40 crore. Thereafter, studios like Walt Disney, Warner Brothers and even the media giant Viacom announced their plans for India. While Walt Disney will be co-producing an animation film Roadside Romeo with Yash Chopra’s Yashraj Films, Warner Brothers has announced its co-production deal with Nikhil Advani’s Orion Pictures to make a mainstream Hindi film called Made in China, starring Akshay Kumar and Deepika Padukone. Viacom initially made an entry into India through Paramount Pictures, which distributed Paramount and Universal Pictures and Dreamworks films. Then it made a foray into TV with its flagship channel MTV and slowly grew the TV stable to VH1 and Nickelodeon. More recently, to have a larger presence in TV and other areas of media and entertainment, Viacom entered into a joint venture with one of India’s leading media conglomerates, TV18.
A new high
As the year began, the stock market started off leisurely, meandering sideways till early August. But the momentum picked up later in the year as foreign investors started to pour in record sums as the US dollar weakened.
Ultra mega power projects take offThe ambitious Ultra mega power projects took shape this year as the government awarded the contract for Mundra to Tata Power, while the Sasan and Krihnapatam projects have been awarded to Reliance Power. Initially, the Sasan project was awarded to the Lanco Group, but their bid was disqualified and subsequently, it was awarded to Reliance Power.
The government has decided to develop 10 ultra mega power projects through private sector participation to meet the growing demand for power.
These projects are expected to be commissioned during the 12th Plan period (2012-17) and will have a minimum capacity of 4,000 MW each. The tariff-based competitive bidding process should soon see more power projects seeing the light of day.
Rupee touches record high
For the currency markets, 2007 will go down as a record year as the rupee notched the highest ever gains as it surged to 39.31 per dollar. Sustained and robust capital flows and the general weakness in the dollar against major currencies worldwide were the main reasons for the rupee’s strength. The rupee surged by around 12 per cent against the greenback so far in the year. Currently, the rupee is trading at around Rs 39.54 to the US dollar. Burgeoning foreign exchange reserves that crossed the $273-billion mark on the back of rising foreign investments contributed to the rupee’s strength. But while importers have reasons to smile, it’s the exporters who are a worried lot.
PE comes to the party
Private equity investments have increased the past year. According to Grant Thornton, the PE deals have witnessed a 118 per cent jump during 2007 (till December 15). The total number of private equity deals announced during 2007 stands at 386 deals with a total announced value of $ 17.14 billion as against 302 deals with an announced value of $7.86 billion in 2006 and 124 deals with ans announced value of $2.03 billion in 2005. The average deal value has increased from $26.02 million during 2006 to $44.42 million in 2007. Last year, 48 deals and 77 deals were over $100 million and $50 million, respectively, as against 11 deals and 29 deals of over $100 million and $50 million, respectively, in 2006. Temasek Holdings acquired a 5 per cent stake in Bharti Airtel for $1.9 billion, which marks it as the biggest private equity investment in 2007 that accounted for 11 per cent of the total PE investment in 2007.
Airlines fly together
In a bid to control costs and also improve market share, major airlines merged this year. The most prominent buyout that splashed newspaper headlines was done by the flamboyant Vijay Mallya.
GDP on track
The second fastest growing economy continues to maintain its growth momentum in the first half of this year. For the fiscal year 2006-07, the GDP growth clocked an astounding 9.4 per cent growth due to a strengthening of the domestic economy and the rising spending power of its denizens. The Indian economy clocked the 9 per cent plus growth for the second consecutive year running. For the first half of fiscal year 2007-08, the Indian economy is holding steady with a GDP growth of 9.1 per cent. Sustained manufacturing activity and increasing construction and financing businesses have added to the growth momentum. Other sectors like ship building, tourism and telecommunications are showing great potential with heavy investments. This growth juggernaut is unlikely to slow down.
Realty major DLF came out with India’s biggest IPO that raised Rs 9,200 crore in the domestic market. This saw the total equity issuances in the primary market rising to Rs 32,500 crore, compared to Rs 21,000 crore in 2006.
MNCs make a big splash
While Indians have been making acquisitions abroad, multinational companies have been on a buying spree in India. Among the big deal makers was Vodafone that bought a 67 per cent stake in Hutchison Essar Telecom for $10.8 billion.