Trigger-happy

Interest rates, movement of oil and rupee, corporate results, divestment and state polls will influence equities

 After furiously accumulating 6,300 points in the five months to end August 2018 as against 16 months taken to travel the same distance earlier, the equity benchmark seems to be losing stamina. It shed more than 4% in over a fortnight since reaching its life-time high. The US-China impasse on trade tariffs continues. Following Turkey, Venezuela became the second emerging economy to see flight of foreign capital. The fear is of the contagion spreading to more countries. Oil prices rebounded to US$ 79 a barrel and the rupee slipped below 72 a dollar.  Bond yields have crossed 8%, indicating the central bank might have to increase interest rates for the third time after four years in its October policy meet. After the euphoria, there is a sobering realization that the 8.2% expansion in the GDP in the June 2018 quarter over a year ago might not sustain as the spurt was on a low base of 5.7% increase in the June 2017 quarter. Floods in Kerala in August, too, are likely to dent the GDP numbers of Q2 of the fiscal year ending March 2019.  What is striking, though, is the side-way movements of the market. After declining for a number of consecutive trading days, equities bounce back over the next few days, fully or partially erasing the previous losses. There are alternate bouts of selling and buying by both foreign and institutional investors. Those who prefer to sit out during the surge enter on dips. The message from the market is clear: though expensive relative to their trailing earnings, the future of Indian companies is bright. To move up to the next level, there is need for fresh triggers.   

 

 A significant cooling of crude might come after the IPO of oil producer Saudi Aramco, slated anywhere between this year and 2020, is out of the way. Saudi Arabia is pushing for a price beyond US$80 a barrel to get a good discounting for the offering in spite of the Organization of Petroleum Exporting Countries meeting the objective of draining out excess inventories after agreeing to cut output end 2016 for a year and then extending it to end 2018. A barrel had crossed US$ 140 in July 2008. A few months later many US banks collapsed. After falling in reaction to the credit crunch, crude recovered to US$ 100 in 2011 as pump-priming by the US monetary authority opened up the credit pipeline. As many smaller European countries struggled with debt default, prices started slipping in 2013 and plunged by half a year later. Hopefully, the Gulf nations would not want such a situation to repeat as the current level of cutback in output is sufficient to put their economies back on track. Alternatively, a government-induced slowdown in the world’s second-largest economy, China, can soften commodity prices and lift import-intensive economies such as India. Easing of the current account deficit will follow. The second trigger will come from the Federal Reserve if it stays put for the rest of the year, citing contradictory signals from the US economy. Consumer confidence is high but uncertainty arising from tit-for-tat trade barriers has muddied the outlook for American exports. Compensating exporters with subsidies will expand the widening fiscal deficit and derail the booming domestic economy.       

 

Stability in US interest rates will give the Reserve Bank of India flexibility to pause from its money-tightening exercise. Soft consumer prices have enabled it to let the rupee beyond 70 so as to remain competitive. Despite dipping into the reserves, there seems to be no urgency to prop it up to above 65 prevailing at the beginning of the fiscal year. The existing disparity between the interest rates in India and US is quite attractive for dollar inflow into the local capital markets. The Make-in-India campaign is an acknowledgement of the limits of relying on exports to shore up foreign exchange. Instead of higher external borrowing limit for Indian companies, opening up aviation, insurance and multi-brand retail to controlling foreign ownership will prove a powerful magnet for overseas funds. In the short term, the Q2 and Q3 performance will reveal if the resilience of Corporate India in overcoming the disruption of demonetization and implementation of GST extends to circumventing the effects of expensive inputs. Release of more dearness allowance to Central government employees and enhancing the overdraft facility to Rs 10000 for Jan Dhan account-holders should spur urban-shopping just as a normal monsoon and higher farm support prices have provoked rural-buying. Many companies’ volume-push due to reduction in GST is slated to translate into higher margins on pass-through of costs after the cooling period and improved capacity utilization. In between, the beginning of bidding for bankrupt power assets and divestment in PSU cash-guzzlers will boost investor confidence. Later, results of elections to five states will provide clues on the mood of the market.

-Mohan Sule

Strange things

Rupee weakening despite return of foreign investors, growth without discipline and promoters unwilling to let go

The snap decision of electric vehicle pioneer Elon Musk to take Telsa private and then reverse it after a few days is not the only strange thing that has happened of late. The comeback of foreign portfolio investors since July after being net sellers in four of the first six months of the current calendar year to lift the local equity market to lifetime highs is equally jolting. The BSE benchmark took half the time to amass over 2,800 points that it had accumulated in the three months to end June, gaining 27% in the next two months. Their return was despite trade tensions running high and Brent crude quoting above US$77 a barrel, triggering fears of inflation spiraling and current account deficit widening. The Federal Reserve was sending hawkish clues. The Reserve Bank of India and the Bank of England were yet to meet. The hike in their policy rates coincided with the US central bank pausing from its ramp-up cycle beginning August after raising them for seven times in three years from end 2015. The tariff agreement between US and European Union was still to be reached and signs of thaw between the world’s two largest economies to agree to talk were not visible. The buying by overseas investors continued even as there was a flight of capital from fragile Turkey after the US slapped import duty on steel exports. Not that the Indian market was cheap, with the Sensex quoting at a P/E of around 22 end June. Mid and small caps were tumbling on tighter surveillance by the market regulator. The resumption of foreign fund inflow did not offer any support to the rupee. The Indian currency continued to weaken, breaching the 71 mark, along as with those of emerging markets in reaction to the 17% plunge of the Turkish lira in a day mid August.  

More than being satisfied that India is capable of expanding in double digits, as shown by the revised GDP numbers of the UPA years, the question that investors want to ask is why 2006-07 was an exception, with growth plummeting to 6% over the next five years. Adding to the confusion if the figure of over 10% increase in output in the third year of the then regime should be taken at face value is the admission of the official compilers that there was no reliable data. Assumptions have been made. The trajectory was accompanied by 6% average CPI inflation in 2006 from 4.5% in 2005. The combined Center-states fiscal deficit had deteriorated to 23% of GDP from 15% in 2003-04, when the UPA government took office. The spending spree included 43% higher allocation to eight flagship programs over 2005-06. The target for farm credit was enhanced 15%. Importantly, cheap money from the US and Japan was sloshing around. The accelerating net external flows into India’s capital markets nearly tripled to US$20 billion in 2007-08 from the previous year. The inability to sustain the momentum thereafter is a testimony to the transitory nature in the absence of structural reforms. The asset bubbles burst in the second half of 2008. FIIs pulled out US$ 15 billion in 2008-09. In contrast, the first two years of the NDA government were marked by drought. Disruptions due to recall of high-value notes and the roll-out of the goods and services tax followed.

If the exhilarating thought of what India could have been is enough to depress investors so have certain corporate actions. Though the long-serving former boss of HDFC escaped from being ejected from the board by a whisker, the direction by foreign proxy advisors to vote for his ouster should result in introspection. No doubt even international intermediaries participating directly or indirectly in the domestic capital markets should follow standard operating procedures. Yet the firepower against them appears an attempt to divert attention from the crucial issue if the shareholders’ representatives are performing as per expectation. The scarcity of wise men to offer guidance is not a secret. What is not widely known is the number of boards they grace, raising concern of their capacity to pay full attention to the companies they are counselling. Fixed-term tenures and a gap before re-induction are ideas worth exploring. Two of the long-serving directors took the hint and quit. Hopefully, Deepak Parekh, too, will so as not to tarnish his legacy of being a role model for transparency by making way for professionals to run the mortgage lender. That owners are reluctant to let go off is not something new. What dismays is how those who preach corporate governance fall short. It took the Reserve Bank of India to nip Uday Kotak’s bypassing the spirit of reducing his stake in the private sector bank he founded by issuing preference shares instead of ordinary shares. When it comes to Indian promoters, time and again it has been demonstrated that it is selfishness rather than the interest of the small investors that guides their actions.           

-Mohan Sule

Spoilt for choice

On offer are small caps with governance issues, mid caps taking debt to grow and large caps prone to missteps in using cash  

Investors are in an enviable position. There is an array of old economy sectors to explore: The dependable FMCG companies, private banks, NBFCs, automobile assemblers and pharmaceuticals producers. The fading of the disruption due to the recall of high-value notes and roll-out of the goods and services tax and the turning of the commodity cycle riding on the recovery of global economy have put into play oil and gas explorers, refiners, metal miners, capital goods and cement manufacturers, construction companies and providers of housing-related products. PSU banks are getting capital infusion and being empowered to drag defaulters to insolvency. The basket of emerging industries, too, is expanding, with the addition of small lenders, asset management companies and life and non-life insurers. Large-cap laggards are waiting to be picked. Mid and small caps beckon after many shed 30% and more flab. The market regulator has turned hawkish in monitoring stock movements. Policy makers are pump-priming the economy by a series of steps to provoke consumption, particularly in rural areas. GST has widened the tax base as the beauty of input tax credits motivates every tax payer to ensure that his supplier is compliant with the new regime. The arbitrage of price advantage to gain market share is disappearing.    

At the same time, investors today are a pitiable lot. Only about one-third of the more than 3,000- listed stocks trade regularly. Small caps celebrated for spotting niches are also susceptible to headwinds of macro-economic trend reversals, revision of policies and changes in market tastes. The other side of a booming economy that lifts airlines is surging prices of inputs.  The tight grip of the promoters that gives flexibility to change directions without much outside interference can be misused. An e-governance facilitator is now being probed for buying shares of a jeweller. Disclosures can be sketchy. A promising packer of fruit pulp went into a free fall on allegations of divergence of its plan on paper and on ground.  Corporate actions such as bonus shares and stock-splits can be deceptive as there is no outflow of cash. More information is available about mid caps. Their outlook is enticing but can become outdated quickly. An air-conditioner maker unexpectedly skidded in the June 2018 quarter after a `bad summer’. If the upside is survival bias in once-emerging sectors, the downside is sluggish growth. Presence of domestic and foreign institutional investors does offer comfort about their numbers and practices. The concern is the constant need for capital to achieve scale. A builder of airports, a sunrise opportunity, has a debt-to-equity ratio of 46. Ironically, the revenue visibility coincides with the economy heating up and the cost of raw material and money beginning to rise.

Large caps have the strength to withstand economic instability. Yet they are not immune to company-specific issues. Overseas buy of a domestic steel giant that seemed like a masterstroke turned a cash guzzler after the global meltdown. The boards of those that have dispersed ownership are prone to dither over resolving issues that can affect stock prices. In contrast are promoters who do not want to let go and make a mockery of price discovery. The price-to-earnings of a discount retailer with just 20% float is above 100. Opaque acquisitions, bumper compensation packages and accusations of conflict of interest have tarred brands in the private banking and technology services spaces. Usage of reserves becomes a lightning rod. Buybacks to shore up prices result in limiting liquidity and loss of interest among institutional investors. Unrelated diversifications are typical gestures to flank the core activity. The market is unsure if the primary business of tobacco should get more weight or the unevenly performing portfolio of hotels, foods and paper. A petrochemicals conglomerate has been re-rated not because of the cash that its refinery is producing but because of the promise of capital gains from telecom services. A personal-care MNC dependent on rural income is darting from indigenous solutions to frozen desserts to stay attractive. An infrastructure player’s subsidiaries providing financial services and software solutions are getting more interest. The shareholders of a quality private bank are figuring out the next move of the smart founder to dilute stake without causing destruction of wealth: offload shares, enhance the capital or undertake an expensive merger. Those who bought into a legacy LCV and M&HCV owner’s bet on top-of- the-line luxury passenger vehicles to capture China’s growth story are stumped as the local market is showing more potential. When it comes to side-stepping risks, investors do not seem to be spoilt for choice.        

-Mohan Sule

Liquidity injection

Capital infusion into PSU banks, hike in MSP for kharif crops and cut in GST rates lift large caps

A striking feature of the recent rally in large caps that took the benchmarks to lifetime highs is the role of domestic institutional investors. Foreign portfolio investors are reducing their exposure to equities since August 2017. More stocks were liquidated by them than bought in the first six months of the current calendar year after being net buyers in the previous three years. In contrast, mutual funds’ net equity investment was up 30% between January and June over the same period a year ago. As the US and China respond with tit-for-tat import duties, countries are going to look inward. The trend of subsidizing home producers even as import barriers are being pulled up is pushing out overseas investors, who will prefer to operate within their boundaries rather than risk taking money outside. Countries will be left no choice but to manipulate their currencies to achieve growth. How they do so will depend on their orientation. China intends to loosen money supply to depreciate the yuan to make exports attractive even in the face of higher duties. India wants to prop up the rupee to slow down the flight of capital to pay the import bill. The US Federal Reserve has taken a pause from hiking interest rates. A strong dollar will push American exports out of competition.

Mutual funds do not seem unduly perturbed by the macro-economic headwinds. Equity scheme folios have increased 30% and those of exchange traded funds ex-gold 60% over the June 2017 quarter.  Cash has to be deployed. Many large caps had yet to participate in the rally and looked moderately priced compared with their smaller peers. The first wave of June 2018 quarter results underlined their capabilities and outlook. The reorganization of market-cap groupings, as per the Securities and Exchange Board of India mandate, has resulted in the downsizing of several stocks. Schemes whose selection is based on the criterion of market value had to shuffle their portfolios. With the shrinking of availability, the search has intensified for value buys by large-cap funds that had become lighter after many of their picks became mid caps. Big-sized companies are ready to run after spending most of the last year ensuring that their distributors and suppliers become GST-compliant to claim input tax credit. The capital market regulator’s increased surveillance has put off investors from small caps. A portion of the profit booked by exiting from these counters is making its way into large caps. A massive fiscal stimulus has been pumped into the economy. The minimum procurement price of crops that will be sown in April-September will be 50% more than the cost of production. Karnataka is the latest state to waive farm loans, writing off Rs 34000 crore. The depletion of the treasury of states can be expected to be made good by the buoyancy in tax revenues as the rural economy embarks on a spending spree.

With the worry about recovery vanishing, banks will have to make lower provisions and will have more funds to lend. Alongside, the clean-up of books by tightening the bad loan recognition norm, shepherding defaulters to the insolvency process, initiating corrective action against worst-case-scenario banks and infusion of capital by the Union government are shaping up PSU lenders to meet the increased demand for credit. Creating a favorable atmosphere for consumption is the latest round of reduction in the indirect tax rates. In a year since implementation, cement, air-conditioners and large screen televisions are the only mass-based items in the highest slab of 28%. Trends suggest the economy has not only recovered but is picking up momentum, too. The services sector recorded a 21-month high growth in July. The thrust on infrastructure and housing segments has spurred demand for steel (output up nearly 3% end June 2018 over a year ago) and cement (12% increase). Monthly electricity generation is the highest ever. Sales of passenger cars rose 8% to an all-time high of 3.3 million and two-wheelers 16% to cross 20 million. The good response to recent IPOs suggest availability of funds for investing. The tailwinds of the festive season are around the corner. The US-EU accord on tariffs has bolstered hopes of cooling down of the trade-war rhetoric. Oil prices look unlikely to climb up any further, having lost over 5% in July. The downside to the upbeat mood are corporate governance issues that might crop up, surging valuations of large caps and intensification of the panic selling of mid and small caps by retail investors, hurt by the recent brutal correction.

-Mohan Sule

A hug and a wink

The market finally embraces large caps with a nod to efficiency, leadership and transparency  

Large-cap indices are touching lifetime highs even as mid- and small-cap indices have slipped more than 20% from their peaks. The pace of gains of the benchmarks has been slow as against the rapid climb of their peers in other categories. Only a few components in the S&P BSE Sensex and the NSE Nifty 50 are driving the rally in contrast to the all-round surge in the discounting of the constituents of the tier 2 and 3 indices. Beyond the obvious, the stock movements are sending subtle signals about the state of the market. Those that have taken debt to grow, are in sectors that are subject to cycles, are facing increased competitive pressure and are confronted with changes in the market place due to scaling up of technology have been left behind. The leaders and laggards include promoter-driven as well as professionally run companies. Hopefully, the latest outcome should set to rest the fruitless debate on the effect of promoter holding in attracting investors. What matters are transparency, vision and leadership position. Missteps and corporate governance issues are not unique to any particular type of organization. Companies within Old Economy and emerging areas have scored differently. The market has recognized the foolishness in rushing to re- or de-rate a sector because of the stunning performance or misdeeds of one or two peers. Examples of resilience can be found even in the face of an epidemic such as economic slowdown or ballooning bad loans. Product innovations and efforts to reach the last customer can overwhelm even a crowded field. Prudent use of cash for diversification can unleash a sluggish stock. Conflict of interest can de-rail a promising counter.

An inescapable inference is that the benefits of the policy thrust on rural economy and infrastructure-building have yet to percolate to companies slated to be the recipients of the largesse. The lack of enthusiasm for these stocks is due to two factors. One, most of the spending is by the government with its downside of delay in approvals and payments. Second, many winners are lowest bidders: the top line gets a boost but not the margins. Despite their dominant market share, the demand for large companies in core sectors is lukewarm. The firepower of automobiles, usually in the forefront of any rally, seems to have been consumed to remain competitive amid rising input costs, fuel-efficiency norms and the coming transformative challenge of electric vehicles. The surge in the side counters hinged on the cost of money staying low to facilitate growth plans. The limits of efficiency in giving a bump to the financials have been exposed, with producers unable to take price hikes to stay in the game. Volumes had to compensate for healthy operating profit. Also souring the mood was the flurry of resignations by auditors, raising doubts about the numbers in the public domain.

Some stocks with a track record and brand recall escaped from the stampede. Clearly, the market concluded that, though expensive, these counters deserved the premium. Left unsaid is the inadequate supply of quality stocks. It also points to another problem: the subscription flood into mutual funds during a bullish period. Schemes have exposure ceiling.  Not many want to let the cash remain idle. The result is a hunt for counters that have a semblance of operations and an enticing spreadsheet of consumption projections in the hope they shape up and justify the trust.  A few companies abandoned by investors due to tighter regulatory surveillance are now buying back shares to support prices. The problem is there is hardly any headroom for most mid and small caps to maintain the 25% minimum public shareholding due to hefty promoter holding. Many owners dilute stake just so to stay listed. Price discovery is the casualty. Significantly, the Securities and Exchange Board of India recently relaxed the norms for delisting. Instead of a consensus price, a range will be offered to the investors. Despite the unease, there are three satisfying conclusions from the recent partial meltdown of the market. Companies in the services sector are majorly creating wealth for the investors. India is leaping into being a services economy, unlike China, due to near 35% millennial population, according to Morgan Stanley. Many services sectors are yet to get recognition in the headline indices. Retail, logistics, hospitality and healthcare have poor representation. Their eventual inclusion will be a powerful booster dose for the benchmarks. Second, those that have invested in brands are enjoying an edge. Third, the divergence in trends in gains and decline within and outside the sector- and  market-value-based grouping points to selectiveness that will cushion future shocks so typical of mid and small caps.       

-Mohan Sule

What investors want

Setbacks to growth plans are more likely to be forgiven than opacity and fudging of numbers

The initial reaction to a long-overdue correction dissolved into panic as the slide of mid and small caps that began early May continued over two months. Of late, even large caps seemed to be losing their stamina in their climb to catch up. An across-the-board secular direction irrespective of performance, usually indicating over- or under-valuation, troubles investors. They are braced up for alternate cycles of boom and bust as they know that policy makers will tighten liquidity to prevent bubbles and loosen money supply to borrow and spend. What investors are not prepared for is disturbing of established agreements. The flooding or starving the market of lubricants essential for smooth operations such as oil by oil producing and exporting countries unnerves them. They detest uncertainty. There seems to be no clarity as to how the US and China trade war is going to conclude. Nasty shocks throw them off-balance. The overhang of social obligations and political considerations in taking business decisions had not diminished investors’ enthusiasm for public sector bank stocks, considered the best vehicle to ride India’s growth trajectory. The magnitude of the investment risk became evident after the Reserve Bank of India narrowed the time-frame for recognition of bad loans from six months to 90 days, restricting operations of banks under prompt corrective action. Investors are prepared to live through turmoil if they know the outcome. Selective picking of mid and small caps by the market regulator for tighter surveillance to nip price manipulation appears right. What they are not sure of is the objective. The selection signifies corporate governance deficit and thereby a warning to keep away or an intervention to cool prices and therefore afford an opportunity to enter at a lower level.

Investors love road maps. Monetary authorities give indications of their approach on policy rates during the course of the year. The inclination is not to cause unnecessary volatility in the equity and debt markets. No wonder many governors of central banks assume rock-star status. Investors are attracted by policies creating higher consumer spending. What they are not reconciled to is to companies growing their sales because of limiting competition. Leadership position due to being first-mover is embraced but not monopoly status that does not encourage cost-efficiency. Long-term capital gains tax on equity is just when the principle is that all income must be taxed in a fair manner. The move is unjust when the revenues are spent on short-term measures such as loan waivers and hiking support prices for farm produce. Investors do display patience while promoters rehabilitate their company following errors of judgment. Inexcusable are issuing bonus shares and announcing grand expansion plans to divert attention from the shoddy performance and reckless raising of capital.

Missteps by companies in spending capital on expansion or downturns in an industry due to change in consumer tastes and technology are eventually forgiven. What are not are siphoning off funds, related-party transactions and window-dressing. The spate of resignations of auditors has spurred questions about the authenticity of numbers of even earlier years. The new accountants of a company that was hammered because the predecessor made an issue of inadequate disclosure of material information have found no evidence to substantiate the claim.  The result is confusion rather than transparency. The problem is while figures can be validated, the quality of governance becomes a victim of subjective assessment.  The failure of a bank chief to disclose conflict of interest while being part of consortium that granted loan to a company that had invested in a family member’s business can be viewed as an oversight as well as lapse of judgment. The market does not seem to have a uniform rule to weigh on such ambiguous matters. In contrast, shares of a jeweler whose co-promoter gifted some shares to a related party was beaten and so also of a tech company for investing in the ornament maker. What follows in an indictment of the entire group that share common characteristics with those found wanting of their fiduciary responsibility. No wonder investors feel irritated due to opportunity missed if the blacklisted category resumes its strides after a time gap. Like fast food, quick judgments, investors have now reckoned, are injurious to health. The valuations at which a public sector player will take exposure to an ailing private bank will leave ample space for capital appreciation compared with if it were to buy into a profitable venture. The long tenure of redemption of policies puts the insurer in a unique position to pluck such low-hanging fruits.

-Mohan Sule

Survival strategies

Companies respond to opportunities and threats in a manner that might seem contradictory but relevant to their predicament

To understand how Indian companies are strategizing to stay in the game as banks become selective, equity investors impatient and the debt market expensive, there can be no better instructive exercise than observing the Ambani brothers. When the RIL group was divided in early 2005, the younger sibling’s portfolio had a combination of new economy and traditional but emerging businesses. Refinery and petrochemical complexes and the nascent retail outlets were assigned to the elder brother. More than a decade later, Anil is divesting stakes. The huge power plants put up to benefit from the deficit are slow in showing results.  Reliance Energy has been sold and Reliance Jio is taking over Reliance Communications. Foreign investors have been offered substantial shareholding in the financial services, asset management and insurance companies. Mukesh, in contrast, is facing a different predicament: how to deploy the reserves accumulated through old economy operations to keep the shareholders happy. Believing wireless services to be as essential as oil, voice calling was offered for free and data at bargain tariffs to create a big bang. The contradictory styles of the two capture the current preoccupation of Indian promoters to survive and grow. Heavily-leveraged companies are shrinking their balance sheets to concentrate on their competency. Those on the leadership perch are darting back and forth to become a one-stop shop or diversify to boost the return ratios.

The important lesson is that companies’ cash utilization and leakage-stemming policies are responses to the evolving situation. ADAG slipped not solely because of misjudgment. Rather external factors such as the Supreme Court’s crackdown on irregular issuance of telecom licences and the subsequent chaotic regulations skewed calculations. At the same time, Tata Motors’ determination to pull off its Jaguar-Land Rover buy appears to be paying: Main market China is stabilizing and the euro region is recovering. The second outcome is if unbridled ambition can hurt a company so also too much cash. RIL has quelled investors’ revolt over the mediocre capital appreciation by its aggressive RJio posturing, possible only because of its liquidity chest. In contrast, tech companies are distributing bonus shares and resorting to buybacks as they navigate an uneasy transition to digital offerings from back-office support. The third take-away is that the idea of growth differs for different companies. A high-entry barrier requires huge capital and patience. These are the strengths of large groups who were prominent in bidding for spectrum and circles. For a mid-sized sanitary-ware maker, extending the presence in the kitchen to ride on the housing boom is less risky than integrating backwards to secure supply of inputs. The fourth draw-down is that if commoditization of brands poses a danger to some, it presents an opportunity to the others. Consumer durables and FMCG are turning into generics. On the other hand, the expiry of patents is a window to the developed world for copy-cat pharmaceutical producers.

The fifth inference is that regulated industries that attract due to the fat margins can also become graveyards. Some ambitious entrepreneurs want to be present across the commodity spectrum for pricing power though these sectors are susceptible to policy whims and are cyclical. The distressed core sector assets are a testimony of how aping the current fashion can lead to destruction. At the same time the fact that the interested parties are seeking consolidation rather than trophies indicate careful homework of the outlook. Many first-generation entrepreneurs have become millionaires by servicing the needs of the recession-proof healthcare sector that is, however, subject to intense scrutiny. Mines can be shut due to local agitation. Price caps are imposed on scarce and essential requirements. The sixth conclusion is, despite the captive audience, B2B players yearn for B2C presence to shield the core cyclical operations and gain a direct entry into homes. Retail lending, asset management and insurance are the flavor though most conglomerates have not been able to replicate the success achieved by their flagships. The seventh observation is that if the upside of India’s consumer markets is the rapid urbanization, the downside is intense competition. The churn in the mobile handset segment has not deterred new entrants. The eighth lesson is the nature of tie-ups is changing from expanding the market to preserving the existing share. Pooling of equity or know-how-access ventures between Indian and foreign peers are giving way to collaboration with competitors. Joint custody of assets and sharing of resources by rivals indicate the trend is likely to turn into a tide. The bottom line is that one size does not fit all when adapting to the changing environment. The key is to be ruthless in letting go and careful while spending.

-Mohan Sule