When hunters become the hunted

When hunters become the hunted

New Delhi: The number of foreign companies heading to India will only increase with time, holds Goldman Sachs, one of the world biggest investment banking firms. Its CEO for India, L. Brooks Entwistle, says that there is a continued M&A story in India, but it has fundamentally changed to being an inbound story. This is unlike earlier when Indian firms were the ones driving cross border acquisitions from India. The past two years saw a flurry of big-ticket acquisitions by Indian companies like Tata Steel, United Spirits and Hindalco. But now there are international companies like Daichi Sankyo, Telenor and NTT Docomo investing in India.

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Entwistle says his group has changed the way it looks at India as there are companies here that are now available at good bargains. Also, there are growth opportunities in India that are more attractive as compared with elsewhere in the world. “There are assets here," says Entwistle. Also, even as the Indian economy slows down, it is still slated to do better than most at between 6-7% growth as per most experts. Indian markets are relatively more insulated from the global demand slowdown because of a substantial domestic market. Demographics too rule in India’s favour. The market is only set to grow with time as more young Indians join the economy.

Standard Chartered Global CEO Peter Sands is also bullish on the Indian economy. He says that for companies like his that have rich cash reserves, these times present an opportunity to pick premium assets. He agrees with Entwistle and says that India does present growth options and his company will continue investing in it.

“We have been making acquisitions all over. India also presents such opportunities. It is a growing market for us," he says.

There is yet another reason for Indian companies slowing down on acquisitions. The recent global turmoil has led to a contraction on the Indian stock exchanges as well. As a result the number of billion dollars (by market capitalization) has declined. There were 226 such companies listed on the BSE in the beginning of the year. They declined to 139 in September. And now, just 90 have a market cap of a billion dollars or more. Experts say typically billion dollar companies drive cross-border acquisitions. In such a scenario, Goldman Sachs is asking promoters to attack this opportunity. It is telling them to identify assets that are non-core and sell them as a source of capital.

There are some who believe that Indian companies will continue to make acquisitions but say India will see more domestic M&As as well. Neeraj Bharadwaj, MD and country head for Apax Partners is one such person. He says that outbound acquisitions will continue as Indian companies have strong balance sheets. But adds that domestic M&As will pick up as well. “One will see a lot of consolidation in the Indian markets," he says. One may also see a lot of promoters buying back stakes and companies turning private, adds Bharadwaj.