Dubai: Equities in India are poised to extend their winning streak to a sixth consecutive week, bolstered by mergers and acquisitions chatter, improving business outlook, share buy-backs and political developments that should boost the confidence of the ruling party in New Delhi to push ahead with its economic reforms.
Elections to municipal corporations and district councils in the western state of Maharashtra gave Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) a victory in most, indicating grass roots support was unaffected by the government’s demonetisation of high-value bank notes despite widespread hardships.
In Mumbai, the state’s capital, the BJP nearly trebled its seats and was only two seats off its estranged ally’s number. More importantly the main opposition Congress party slipped sharply in the sweepstakes.
Counting of votes in elections to five state assemblies — Uttar Pradesh, Punjab, Uttarakhand, Goa and Manipur — is scheduled on March 11 after the last round of polling ends on March 8. The results, particularly in Uttar Pradesh, which sends a decisive number to the central upper house or Rajya Sabha, are crucial for the BJP to carry through reform legislation.
“The sweeping victory for BJP in the hinterlands of Maharashtra is a morale booster for the markets,” said equity salesman Mehul Dalal. “It shows that ordinary people can rise above petty politics and vote for development agenda.”
The top-30 Sensex climbed 1.5 per cent over the week to 28,892.97 and the 50-share Nifty gained 1.3 per cent to 8,939.50. The indices, tracked by fund managers closely, should top 29,000 and 9,000 respectively in the coming week.
Flavour of the season
Companies are looking to consolidate their operations to stay competitive. This is evident in the telecoms sector where the entry of Reliance Jio Infocomm Ltd, which has attracted more than 100 million mobile subscribers in a just five months of commercial launch, has shaken up other companies.
Bharti Airtel, the leading mobile services company, this week reached a deal to acquire Telenor (India) Communications’ operations in seven circles. When completed the Norwegian company’s unit would be merged with Bharti and would give it added muscle for its fourth-generation network.
Shares in Bharti soared 11 per cent on Thursday to Rs401 (Dh22), their best since August 31, 2015, before closing at Rs366.25.
Rival Idea Cellullar shares have also been red hot since Vodafone Group Plc said on January 30 that it was in talks to merge its Indian services with Idea, confirming weeks of market speculation a deal was in the offing. Shares in Idea, whose margins have been under pressure after Reliance Jio launched free voice calls as well as multimedia mobile services, have jumped 57 per cent in the past one month.
Reliance group boss Mukesh Ambani, India’s richest man, said this week Reliance Jio would start charging for multimedia mobile services from April while voice calls would remain free. Energy conglomerate Reliance Industries Ltd, the group’s flagship firm and which owns Reliance Jio, has spent about $25 billion on building optic fibre network and for radio waves across the country.
If half the current subscribers opt for the cheapest tariff plan, it would bring about $225 million a month into Reliance’s kitty, according to one estimate. Shares in Reliance leapt as much as 13.6 per cent over the week to Rs1,222, their highest in more than seven years, before closing at Rs1,182.75.
M&As pick up
Consumer goods maker Jyothy Laboratories rallied 4.5 per cent over the week after the company began talks to sell up to 26 per cent stake to Germany’s Henkel AG. If the Düsseldorf-headquartered company were to acquire a bigger holding it would trigger an open offer clause under the takeover code to buy another 20 per cent from public shareholders.
Merger and acquisition activity in India jumped nearly three-fold in value to $2.364 billion from 45 deals signed in January, according to data from Grant Thornton India, from 42 transactions worth $827 million in the same month a year earlier.
One big deal done was between state-controlled Oil and Natural Gas Corp and Gujarat State Petroleum Corp worth $1.19 billion.
New Delhi’s push towards easier foreign investment rules and improving business climate should pave the way for increased interest in India.
“Consolidation, restructuring and asset sales by highly-leveraged companies are expected to continue and drive M&A activity in India,” Ashok Lalwani, global head of law firm Baker McKenzie’s India practice, said in a report earlier this month.
“Sectors that are directly linked to the consumption story — financials, consumer, health care, Internet and real estate — will likely see good momentum on the M&A front.”
Meanwhile foreign direct investment in 2016 rose 18 per cent to $46 billion, the government said on Friday, indicating India was a destination for global investors looking for growth over the long term.
Share buy-backs
The board of Tata Consultancy Services, India’s biggest software services company, approved a proposal to buy back up to 56 million shares, or about three per cent of total equity, at Rs2,850 each, spending around $2.4 billion.
The company, India’s biggest by market capitalisation, had almost $5.7 billion in cash and cash equivalents in reserves. The stock rose as much as 6.1 per cent on the announcement to Rs2,555 and closed at Rs2,481.80.
Rival Infosys Ltd has begun the process to make changes to its articles of association and seek shareholders’ approval to allow the company to consider a share buy-back.
Analysts believe the bellwether company would decide a buy-back in April and could spend more than $2 billion. Infosys has more than $5 billion in cash reserves.
State-run hydropower producer NHPC Ltd has also announced a share buy-back.
Share sales
New Delhi sold a five per cent holding in state-controlled Bharat Electronics Ltd, raising about $250 million this week. The government, which owned 74.4 per cent in the maker of communication, radar and naval systems, said the offer was oversubscribed by 260 per cent, underlining robust investor appetite for strong companies.
The shares were offered at a floor price of Rs1,498 each, below the market price of more than Rs1,500.
Avenue Supermarts Ltd, which operates 118 stores across 45 cities under the “D’Mart” brand, plans to launch an initial public offering to raise up to Rs18.7 billion on March 8-10.
The IPO market picked up in 2016 when companies raised $4 billion, the most in six years, and analysts expect the show to be better this year. The National Stock Exchange leads the queue with an expected $1 billion offering later this year.
The author is a journalist based in India.
