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Secrets of Profiting on the Indian Stock Market

30 April 2007 - Features - Editor

The Indian stock market scene is enticing. A domestic market of a billion people, national GDP growth in almost double figures, and a vast pool of technical and managerial resources, combine to make this democracy the most attractive investment destination in the world. However, investing in the Indian stock market segment is also a potential quagmire, because the regulatory environment is far from transparent. Though corruption is ubiquitous, it is not as though you can fly in to town and throw dollars around. Politicians are wary, and you have to channel slush funds through the right sources.

Land and natural resources are top attractions of India, and companies listed on the local stock market, which have significant assets in these categories, present incredible value. Brands and know-how have no places in financial statements, and fixed assets are valued at historical acquisition numbers, which are entirely irrelevant. This situation is not unlike the Wild West of the formative years of European colonization of the Americas, with pots of gold awaiting those who can survive the rapids.

What you need is a guide, or perhaps several guides. People and organizational entities which are entrenched on the local stock market floor, can influence how laws are interpreted, keep competition out, and transform values entirely. You need to be flexible because power is shared by coalition partners, and changes hands at State and even Federal levels periodically. Corporate Czars are ruthless, and will stop at almost nothing to sabotage every dream deal. Domestic executives and agents with the right contacts are in plenty, but it is not easy for an outsider to separate the wheat from the chaff.

The Norwegian Orkla SA, a branded food company from the far reaches of Northern Europe, has pulled off a remarkable coup by acquiring MTR Foods from Southern India for a measly $80 million. MTR has HACCP certification, enjoys unsurpassed customer goodwill, and has invaluable know-how of Indian cuisine. It also has land holdings in Bangalore, one of India’s most happening urban centers, worth far more than the figures in the wretched balance sheet. The deal was inked in Singapore, secure from prying eyes in India. N.M. Rothschild is responsible for the incredible valuation from distant London. J P Morgan Stanley and another private equity source, each with telling holdings in MTR, have obligingly agreed to play ball and sell their holdings to Orkla at throw-away prices. The Indian promoter has an offer to stay on as CEO of the Indian operation.

This cozy club could still come unstuck, because the government in New Delhi has the power to negate the arrangement. Orkla must negotiate this hurdle as well, before they pop the champagne of instant pay-back. However, for you and I, this is a specific case which we can use as an object lesson on how to navigate the choppy but rich waters of the Indian stock market!

 


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