No festivities on Deal Street before Lok Sabha polls

Next year's general elections to keep investors away

Investment bankers in India might take home smaller bonuses this Christmas. A slowing economy and concerns over next year’s Lok Sabha elections have hit Deal Street, with fewer deals being signed as compared to last year.  

Barring Unilever’s $3.5-billion bid to increase stake in its local unit to 75 per cent and Mylan’s $1.8-billion buyout of Bangalore’s Strides Specialties, there were few big-ticket deals to cheer the bankers (see chart).  

Bankers said the rupee weakening against the dollar would keep inbound deals going. Harish Hulyalkar, director (mergers & acquisitions), Citi India, said: “Inbound M&As continued to be a strong theme in 2013, with volumes of $13 billion versus $11 billion in 2012, and was dominated by large transactions in the consumer and healthcare sectors. We expect inbound M&As to be a dominant theme in 2014 as well, with outbound M&As remaining selective across sectors such as oil & gas and industrials in the near term.”

Except for Apollo Tyres’ attempt to buy US’ Cooper Tire & Rubber Co for $2.5 billion, Indian companies saw fewer outbound deals. (The Apollo acquisition is now mired in a legal battle in the US.) But in the oil & gas sector, state-owned Oil and Natural Gas Corporation (ONGC) and Oil India signed a deal to acquire Videocon’s and US exploration company Anadarko’s 20 per cent stake for $5.1 billion in a Mozambique gas field. The acquisition happened even as ONGC Videsh lost a bid to buy a stake in the Kashagan oil field in Kazakhstan for $5 billion.  

Apart from M&As, fewer initial public offerings also led to investment banks laying off employees.

Said Mahesh Singhi, founder and managing director of investment advisory Singhi Advisors, “The real reason for many sectors and companies falling out of favour was many local companies were seeking high valuations, without building their core strengths.”

With a bad year now behind them, bankers are hoping the new year will bring some respite after the Lok Sabha elections. A banker at a multinational firm said on condition of anonymity: “Barring a few deals by multinational companies to increase stakes in their local units, we do not expect many big-ticket M&As by foreign companies in India in the first few months.”

In the next year, Singhi said, as even promising companies’ access to debt or incremental capital gets limited, market consolidation would increase, with weaker players marginalised or bought out; the ones who survive would eventually win.