An industrialist who heads a multi-sector conglomerate admits that the real signs of a slowdown have been pinching his companies over the past two months. However, when asked whether he wants to sell one of his companies, he quickly retorts: “Oh no! In fact, we are buyers. At this point I have three companies which we are looking at.”
This is an interesting situation. On the one hand, there has been continuing concern on the flagging growth rate, falling industrial production figures and the Reserve Bank of India’s reluctance to bring interest rates down further. International rating agencies are watching India with a keen eye and looking out for signs of fiscal consolidation and better economic management. The rupee is still choppy despite a recent surge, the stock markets aren’t showing any clear direction just yet. But there seems to be just that glimmer of hope that better times may be round the corner if things don’t worsen from here.
Investment bankers have started talking about a possible return of mergers & acquisitions (M&As) from the Indian side, with Indian companies possibly turning buyers once again, after a long lull in outbound M&A. For months, inbound M&A, despite lower numbers, have still outnumbered outbound, with Indian companies struggling with domestic problems as the slowdown begins to pinch. Acquisitions have been farthest from their minds. However, i-bankers now say with several business groups restructuring their businesses and even shedding non-core businesses and cleaning up their balance sheets, a return of outbound M&A may not be too far away.
Indeed, some signs of activity – on both inbound and outbound M&A — are being seen, along with a return of positive signs from policymaking corridors. A Bloomberg report on 5 July says the Mahindra group may be interested in picking up troubled aircraft maker Hawker Beechkraft. The Times of India reports Chennai-based Archean bidding for Polish sulphur mining company Siarkopol SA, while another report talks of French retail company Groupe Auchan’s interest in joining hands with the Landmark Group for opening a number of stores in India. Elsewhere, there are signs of action in the financial sector as well. Business Standard reports that the US giant State Street Bank could join hands with ICICI Bank for a share of the securities custody pie as the new Qualified Foreign Investor (QFI) norms throw up new business opportunities. The London Stock Exchange, meanwhile, is also reported to have picked up a 5 percent stake in Delhi Stock Exchange, says another Business Standard report. Already, giants Coke and IKEA have recently talked about their commitment to making investments in India.
Indeed, this flurry of activity may not be a coincidence or a flash in the pan. Ever since former finance minister Pranab Mukherjee moved out of the ministry to take a shot at Rashtrapati Bhawan, Prime Minister Manmohan Singh has been showing an increasing resolve to set things right in the economy. This coincides with a weakening Eurozone which, despite last week’s meeting and some positive signs, is still far away from coming out of the debt crisis. Singh’s taking charge of the finance ministry also comes with talk that big ticket reforms may once again be brought back on the frontburner.
There’s already discussion that the contentious proposal of allowing foreign direct investment (FDI) in multi-brand retail may be brought back on the table soon. This alone, several frontline industrialists and business leaders reckon, could kickstart a return to positive sentiment.
However, despite the bullishness on these fronts, there’s still loads of work to be done.
There’s no movement yet on increasing politically sensitive fuel prices to ease the subsidy burden, inflation remains sticky as evidenced by the latest PMI readings and big ticket projects which would ease supply bottlenecks – the real cause of inflation – are still stuck. Clearly, the government will need to do much more than making the right noises if a 7 percent plus growth rate is to be achieved.
For now, however, the business community will be watching the developments closely. The first signs – though much delayed – will give them some relief. It’s time to step on the reform accelerator.