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Why hedge funds are keen on India

Why hedge funds are keen on India
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First Published: Mon, Mar 12 2007. 12 28 AM IST
Updated: Mon, Mar 12 2007. 12 28 AM IST
A few years ago, hedge funds barely figured on the radar screen of the Indian marketplace, and they were highly secretive investment vehicles even in the US. Today, it’s a different story. As big returns are no longer easy to come by in domestic markets, international hedge funds are increasingly looking to countries such as India and evaluating the investment opportunities offered there.
With almost daily headlines in the media about deals in India, limited partners are pushing hedge fund managers to see what kind of upside might be possible in this market. For example, Hedge Funds World is holding its first conference on Indian opportunities this year, although the forum itself will be in Singapore.
Why India? Unlike China, where stock markets are not well developed and company information is relatively opaque, experts say India has much of the necessary institutional framework for hedging, including a regulatory regime and good information disclosure standards. In addition, India is the largest market for single stock futures in the world and has a well-developed derivatives market in index futures and options, says Marti G. Subrahmanyam, a professor of finance at New York University’s Stern School of Business. “This gives you hedging possibilities not available in other emerging markets,” he notes.
Vodafone-Hutch deal: Is India’s mobile phone market growing too hot?
The deal, at last, is done. After weeks of uncertainty, Britain’s Vodafone announced on 11 February that it had decided to pay $11.1 billion (about Rs48,840 crore) in cash and assume $2 billion in debt to buy a 67% stake in Hutchison Essar, one of India’s largest mobile operators with more than 22 million subscribers. Vodafone’s purchase of the controlling interest in Hutchison Essar—or Hutch, as it is commonly called—from Hong Kong-based shipping and real estate baron Li Ka-Shing values the company at nearly $19 billion, which is twice of what bidders in the first round in January thought.
Four days later, the Aditya Birla Group’s Idea Cellular—another large mobile phone services provider, with 12.4 million subscribers—found more than $27 billion in investor money bidding for its stock during the company’s initial public offering, which had intended to raise some $480 million. The IPO was oversubscribed 57 times, according to media reports. As both transactions show, India’s mobile phone market is red hot—which begs the question whether it is too hot? Are these enormous valuations justified by the market’s growth potential?
A tale of two sectors: What Indian telecom firms can teach the power industry about reforms
The casual visitor to India might find it hard to believe that it houses one of the world’s hottest economies—one increasingly mentioned in the same breath as China’s. In India, shabby airports, potholed roads and clogged ports remain the norm, and major cities suffer regular brownouts, especially during the summer when demand for electricity surges. The government estimates that India will need to spend $150 billion over the next 7-8 years to bring its infrastructure up to par.
According to experts at the Boston Consulting Group (BCG), better roads, ports, power and airports could easily nudge India’s annual GDP growth rate up from 7-8% in recent years to a sustainable 8-10%. Yet the road to better infrastructure has been a bumpy one so far: While sectors such as telecom have boomed and transformed the business landscape seemingly overnight, others, such as energy, have been highly visible failures. According to BCG experts and the faculty at Wharton, the failure of power sector reforms and the success of the telecom industry underscore the importance of foreign investment and competition in India’s infrastructure upgrade.
Ebay’s deal with Tom Online offers timely lessons for managers of global online companies
After struggling to establish a stand-alone presence in China, eBay announced on 20 December 2006 that it would set up a joint venture with politically well connected Tom Online, a wireless Internet company with value-added multimedia services in China.
Despite eBay’s attempts to put a positive spin on the report, most pundits view eBay’s deal with Tom Online as yet another failure of a foreign Internet company coming to China and losing ground to local rivals, much as Google has done to Baidu in the past year and as Yahoo did before it folded its Chinese operations into Alibaba. EBay’s frustration in China is instructive for managers of global online magnates trying to sell to the 250 million members of China’s emerging middle class. Many of the largest mistakes were not the typical problems that businessmen often point to as the reasons why MNCs fail in China—such as corruption, lack of transparency or currency problems.
Sustaining corporate growth requires ‘Big I’ and ‘small i’ innovation
All companies, from major multinationals to start-ups, face a common challenge: How to grow their businesses so they can boost earnings and enhance the value of their shares? Far too often, however, firms find it difficult to sustain growth because they become risk averse and, as a result, opt for incremental product and service improvements instead of major initiatives, according to a study by Wharton marketing professor George Day.
Day says companies can avoid lacklustre growth by better understanding the risks inherent in different levels of innovation and achieving a balance between—using two terms he has coined— ‘Big I’ innovation and ‘small i’ innovation. In his study, Day discusses how executives can assess risks and then seek creative ways to reduce risk exposure. His research is the outgrowth of years of thinking about the problems that companies face in trying to achieve growth targets. Day says growth—particularly “organic” growth that comes from improving a company’s performance from within rather than relying on acquisitions—is at the top of the agendas of some 80% of US chief executive officers,
Make room, Wikipedia: Internet-based collaboration could change the way we do business
It sounds like something from a futuristic TV thriller: American spies thwarting the next 9/11-style terrorist plot through a shared online community modelled after Wikipedia, the free and highly popular user-created, Web-based encyclopaedia. But Anthony D. Williams, co-author of a new book, Wikinomics: How Mass Collaboration Changes Everything, recently told a Wharton audience that this online community already exists, and is on the case.
It’s called IntelliPedia and it’s not open to public. But other websites —community-oriented and built around user-generated content—are not only open to all but thriving, from the public photography site Flickr.com to Craigslist.org, the mostly free classified-ad site that now draws more traffic than mainstream job sites such as Monster.com. In Wikinomics, which Williams co-authored with Don Tapscott, the writers predict that rapidly surging online creation and collaboration in the mode of Wikipedia will “open up the economy” and revolutionize global business in the 21st century.
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First Published: Mon, Mar 12 2007. 12 28 AM IST
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