TheBosch Group continues to shower its Indian subsidiary, Motor Industries Co. Ltd (Mico), with largesse—infusing fresh funds and technical know-how, apart from steadily increasing exports from India.

It recently announced it would invest another €170 million (Rs979.2 crore) in its Indian operations until 2010, which is over and above the €325 million it would have invested between 2005 and 2008.

Its annual investment of more than €80 million has been maintained for at least another two years. While the Bosch Group has a few unlisted subsidiaries in India, the bulk of its work is done at Mico, which, therefore, is the biggest beneficiary of the parent company’s fund infusion.

From a minority shareholder’s perspective, the investments are a bonanza. Normally, when a promoter group infuses funds into a company, it’s in the form of a preferential allotment, which leads to an increase in its stake in the company. But since the Bosch Group’s investments are not in exchange for shares, it’s essentially a case of minority shareholders benefiting at the expense of the promoter group. Mico currently has a market capitalization of Rs16,600 crore, and if Bosch had decided to use the preferential allotment route for its annual investment of Rs450 crore, it would have got an additional stake of only about 2.6%. But when it had announced its first investment in August 2004, Mico’s market capitalization was just Rs1,500 crore. The Bosch Group then had a stake of 60.6% in Mico and would require less than Rs600 crore to buy out minority shareholders. This was just one third of the investments the group had planned in India over the next four years. A buyout would have enabled the Bosch Group to fully reap the benefits of its investments in India. But Bosch decided against increasing its stake during that period.

This time around, the group tried increasing its stake (through an open offer in the July-September quarter) before announcing a fresh round of fund infusion. The open offer for 20% of the firm’s capital was only partly successful, with the company getting a 9.18% stake. Long-term investors, which include almost all public sector insurance companies and a few foreign institutional investors, decided to stay put. Mico still has a minority shareholding of more than 30%. The decision of these investors to stay on has proved fruitful—Mico shares hit an all-time high after the announcement of the fresh investments. With India continuing to play a key role in the Bosch Group’s scheme of things, Mico’s value may continue to soar, and Bosch’s plans, if any, to delist its Indian subsidiary would become increasingly expensive.

The sectoral big picture

Which sectors have given the best global returns in the next three months?

As expected, the returns from the same sector vary widely depending on whether the returns are from emerging markets or from developed markets. To take the most obvious instance, Morgan Stanley Capital International (MSCI) data shows that the financial sector has done much better in emerging markets than in the developed countries, because of the latter’s exposure to the subprime risk. The thrifts and mortgage finance sector in emerging markets gave returns of 15.6%, compared with -36.1% for the world as a whole. Similarly, commercial banks produced returns of 4.2% in emerging markets, compared with -2.6% for the world. Concerns over growth in domestic consumption in the advanced economies are reflected in the negative global returns for the auto sector, at -3.9% in the last three months, compared with 2.3% for emerging markets.

See: Sector-wise returns

The other sectors that have done better in emerging markets compared with others are energy, materials, capital goods, telecom services and retailing.

There are, however, some sectors where emerging markets have lagged in the last three months. One of them is the information technology (IT) services sector, where growth in emerging markets has been -5.16%, compared with -0.1% for the world markets as a whole. Currency appreciation and concerns about a whittling down of IT budgets could be a reason. Currency strength also is a probable reason for returns from auto component companies to be lower, at -6.8%, compared with a return of -6.1% for the world. Then there are the traditional defensive sectors, such as pharmaceuticals and consumer staples, where the developed markets have delivered better returns in the past three months. The only Bombay Stock Exchange (BSE) index to post a negative return in the last three months was the IT index. The BSE Realty, Oil & Gas, Bankex and Capital Goods index saw returns of more than 40%. The big picture seems to be a return to defensives in the developed markets, while the growth sectors outperform hugely in emerging markets. Add to that a slowdown in sectors that export to developed markets and the sectoral picture is complete.

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