Poll outcome has changed India’s investment landscape

Poll outcome has changed India’s investment landscape
The Economic Times, June 8, 2009, P14

Indian corporates are now in a relatively strong position to buy overseas assets, Goldman Sachs India chief tells George Smith Alexander & Bodhisatva Ganguli

AFTER parting ways with Kotak Mahindra in 2006, Goldman Sachs went solo in India. Over the past threeand-a-half years, the investment banking and securities firm has invested over $2 billion of its proprietary and client funds in India. Brooks Entwistle, CEO-Indian operations, Goldman Sachs, tells Bodhisatva Ganguli & George Smith Alexanderhow market dynamics have changed since the poll outcome of May 16.

How would you term the Indian market’s reaction to the poll outcome?

The election outcome is analogous to Obama’s win: You have all the excitement and euphoria, followed by a lot of hard work. We are still in the euphoric stage, but this will shift into hard work soon, which is when the government gets the opportunity to live up to what have become very sizeable expectations.

Investment interest in India has changed dramatically over the course of the past three weeks since the poll outcome. In many cases, investors waited on the sidelines, and, after there was a clear mandate, they jumped in.

The view doing the rounds is that the upside in markets in the West is nothing more than a bear rally while that in Asia is a bull run.

One of the constant themes we hear about from a market’s standpoint is that India and China would lead the way out of the global downturn. It is happening. It’s been dramatic since March. If you think about India, the market peaked in January 2008 and so the trouble showed up on India’s shores a bit later than it did in most markets. Remember the fall of 2007, when you couldn’t have a conversation of subprime in this market. Yet, that was a big topic in the rest of the world, especially in the US. The Indian market fell later, but has snapped back faster. It didn’t last as long as it might have, at least so far.

How much have you succeeded in what you set out to do when you took charge in 2006?

One of the things we set out to do was having a full service Goldman Sachs presence in India. We have done just that. We have built an investment banking team and franchise here that has been involved in the largest sell-side M&A deal ever (Hutch to Vodafone), the largest equity deal ever (ICICI Bank ADR), the largest bond deal ever, and, arguably, the most-complicated and complex M&A deal (Satyam). We certainly have been very active investors in the country. We invested over $2 billion through our various funds and from our own balance sheet, making us one of the biggest investors in the country since 2006. Earlier this year, we decided to delay the launch of our domestic AMC business.

We have the licence and will launch when the opportunity is right. On the fixed income side, we also bought an NBFC.

In the last round of disinvestment, investment bankers slashed their fees to rock-bottom levels. How will you compete in such a market?

There are pieces of business from a business selection decision that you have to pursue and try to be in from a market share standpoint. You have to consider both fees and market share. You have to be selective and you can’t do everything. And the ones (businesses) we are going after, we will play as hard as anyone for them.

What sort of mandates are you getting from corporates? Is it sell-side mandate or for raising capital like QIPs?

We are actively in discussion with clients who have liquidity issues and where there may be an opportunity to sell assets. It’s still a common theme here from an M&A standpoint. The market coming back, as it has, and opening up capital sources, may help some of these situations. We are very focused on working with clients to take advantage of these current market conditions. Also, Indian corporates, which have come through reasonably unscathed, are in a relatively strong position to buy assets elsewhere in the world. We are constantly canvassing the global landscape for opportunities that might be attractive for Indian clients.

Was the pain in the market too short?

The period from January 2008 to now may have been too short to have some people really go through tough strategic decisions. If you talk to people in private equity, up until four weeks ago, valuations were slowly creeping back to a point from where things were getting very interesting again. Then suddenly, it changed again. It’s an interesting dilemma. These markets have been good for promoters who may have been in trouble or in sectors that have come back in favour quickly.

Would deal flows be affected because of the run-up in the market?

With valuations having risen as dramatically as they have, there is no question from a private equity perspective that it’s a more challenging environment to find attractive deals. That said, both our private equity side and many of our financial sponsors clients have made commitments to India to be here and continue to remain here. But things have changed. It’s not going to be easy.

In real estate, was the pain too little?

Companies were just getting squeezed. This period was short enough that very few people actually hit the wall. Anybody in real estate, who had access to the capital market during the past couple of weeks, found a welcome change and a relief. It’s a bit more difficult for companies that are not public yet.

Has Goldman Sachs cut down the number of expats working in India?

In every market that we enter, we bring in a lot of existing Goldman Sachs experience from elsewhere while we build the local bench. India has been no exception and I’m very pleased with the pace at which we have migrated to local leaders. To serve our clients, we remain committed to be the most connected and integrated global investment bank in India.

Going forward, where could we see more investments — infrastructure or corporate?

We still have a very strong private equity focus and will continue to look hard at opportunities in infrastructure. This is one of the places we would want to invest in. But sometimes, it’s not that easy to do so. We will continue to be significant investors across corporate India. Goldman Sachs remains as enthusiastic about, and committed to, India as ever. We will continue to look at real estate, but we will be most active on the corporate front.