News this Week

The buzz this week started with Infosys acquiring Axon Group for $ 753 million which is by far the largest overseas acquisition by an Indian IT company. The only other 2 acquisitions of Infosys have been Expert Information Systems Pvt. Ltd and the back-office services assets of Royal Philips Electronics.

More takeovers were witnessed with the Oil and Natural Gas Corporation buying Imperial Energy, an oil-exploration company working in Russia, for $2.6 billion. The funding will be treated in its books, as a loan to ONGC Videsh Ltd.

News on a relevant topic, considering FinSoc’s upcoming Private Equity Symposium-Reliance Capital, a subsidiary of the Reliance Anil Dhirubhai Ambani Group (ADAG), has set up a $1-billion private equity fund to focus on sunrise sectors such as services, logistics, realty and pharma.

Coming to the volatile situation in Singur the Tatas were struck a double blow this week, with the imminent closure of the Nano plant, and the abandonment of their $3-billion investment plans in Bangladesh due to political instability.

On a positive note, long awaited reforms were finally implemented with the Union Cabinet’s clearance of the Companies Bill, 2008, that calls for stricter disclosure norms, speedier incorporation of companies, more powers to shareholders to streamline the approval process for mergers and acquisitions, offering scope for expanding their businesses considerably.

Inflation figures as per wholesale price index were still at a high at 12.40% for the week ended August 16. The real inflation is, however, hovering at 8.4% if the prices of all goods and services such as construction, hotels and financial services are considered. Nonetheless considering the 5.9 % inflation for the corresponding period last fiscal it remains a cause of concern for the government.

Market regulator SEBI is making headlines once more by implementing a new payment system for public issues called Applications Supported by Blocked Amount (ASBA) wherein retail investors are exempted from paying advance fees, letting the amount be retained in bank accounts till allotment is completed. This is done to ensure that the investors’ money is not blocked unless the shares are actually allotted. However considering the number of intermediaries involved in the entire process such as investors, exchanges, merchant bankers, underwriters to the issue, registrar and transfer agents it is bound to take some time for the entire mechanism to be operational.

In the aviation sector a welcome relief was experienced by airline companies with the 16% drop in ATF prices by public sector oil marketing companies. Even though it is by far the biggest cut in fuel prices of Rs 11,784 per kilolitre, airline companies are not looking at slashing their rates as they would want to exploit the upcoming peak season .It would make sense for them to wait till a clear trend of the movement in jet fuel prices emerges before lowering their rates. In addition, the fuel cut serves as an opportunity to recover heavy losses incurred during the lean season.

Overall the events this week are critical in terms of long term trickle effect .If the Nano plant is to be moved from Singur it would have far reaching implications on not only the bottom lines of the Tatas but also have serious repercussions on future industrial development of West Bengal. Clearance of the Companies Bill and the policy changes introduced by SEBI to streamline processes are greeted with optimism but tangible benefits will arise only upon effective implementation. In conclusion, a wait and watch approach will now be of relevance and the eyes of the nation will be focused on how these issues ultimately play out.