The year 2010, however, holds promise, as corporates will take advantage of the new opportunities, the improving liquidity situation worldwide and the fact that the United States and Europe may witness further consolidation next year.
The global economic slowdown forced corporate India to look largely within the country for merger and acquisitions (M&As) in 2009, accounting for about 60% of the $10-billion worth of deals, reports PTI.
Besides, some foreign multi-national companies (MNCs)—possibly enticed by the world's second fastest growing economy— sought to enter India by buying into local companies, mostly in the telecom, steel and pharma sectors.
Cross-border deals, worth about $4 billion, could have been a lot larger had the estimated $12-billion takeover of global petrochemicals major LyondellBasell by Mukesh Ambani-led Reliance Industries Ltd (RIL) happened this year, and Sunil Mittal-led Bharti Airtel's $23-billion worth deal with South Africa's MTN not failed—for the second time.
Some experts also said that the theme of the M&A space changed in 2009 from 'aggression and optimism' to 'distress sale and desperation' —thus leading to less intense deal activity.
But, it was the Ruias-led Essar group that bucked the trend and constantly went hunting overseas in sectors like oil, telecom and technology and kept the Indian flag flying on deal tables in one of the most difficult times for the global economy.
Good news also came from the Tatas who appeared to have overcome the impact of the global meltdown on their overseas acquisitions of iconic British carmaker Jaguar-Land Rover and steel behemoth Corus in Europe.
"Deals in 2009 were extremely difficult to consummate due to lack of availability of credit, driven by global turmoil as well increased concentration of companies to consolidate their current operations and adopting a wait and watch attitude," PwC's executive director Sanjeev Krishan said.
Consultancy major Grant Thornton said a total of 267 M&A deals were announced during 2009, for a total value of $10.03 billion, as against 454 deals worth $30.95 billion in 2008 and 676 deals totalling $51.11 billion in 2007.
The deal sphere was dominated by domestic deals as there were 142 domestic deals (wherein both the acquirer and the target company were Indian) with an announced value of $5.80 billion, while there were 125 cross-border deals with an announced value of $4.23 billion.
The major deals of the year included the merger of Reliance Industries with Reliance Petroleum, Russia's $676 million investment in Sistema Shyam Telecom, and Tech Mahindra's 31% stake buy in tainted IT firm Mahindra Satyam.
Other major M&As of the year include Sanofi Pasteur (the vaccines division of Sanofi-Aventis) 80% stake buy in Shantha Biotechnics for $664.9 million and Quippo Telecom's $533.3 million investment in Tata Tele Services' telecom tower and infrastructure arm.
Besides, non resident Indian (NRI) billionaire Lakshmi Mittal-led ArcelorMittal, which is waiting for long to establish a presence in India, finally made an entry by acquiring a majority stake in domestic steel firm Uttam Galva.
But, India Inc's shopping spree witnessed a significant decline in 2009 amid economic uncertainties, although experts believe the economy is on the right track to recovery and deal activity next year may rebound significantly provided the pace of recovery in 2010 stays bullish.
The year 2010, however, holds promise, as corporates would take advantage of the new opportunities, slowly improving liquidity situation worldwide and the fact that the United States and Europe may witness further consolidation next year.
But it might still be a little early for popping open the champagne in anticipation that deal activity will bounce back significantly and may even touch the pre-downturn levels, analysts feel.
Grant Thornton partner, specialist advisory services, CG Srividya, said: "While there is clearly an increase in deal activity recently compared to the initial few months of the year, India Inc requires much more confidence, risk appetite and the urge to grow rapidly before we get back to the peak activity levels of 2007 and most parts of 2008."
Echoing similar views, global consultancy Ernst & Young (E&Y) partner and national leader, transactions advisory services, Ranjan Biswas, said: "The outlook for mergers and acquisitions will improve over 2009, but a return to 2007 levels looks unlikely considering the sentiment is still downcast in most developed economies, leveraged acquisitions are still off limits for banks and access to alternative credit markets is still constrained."
"The year 2009 has been a year of introspection for Indian deal makers. It has been a year that witnessed economic uncertainties. The global as well as domestic investment sentiments had suffered a setback," Grant Thornton's Srividya said.
Going forward, PwC's Krishan said: "The FMCG, aerospace and defence and oil & gas sectors also look ripe for significant global consolidation. Another factor would be the re-emergence of the strategic buyers, who had been overshadowed by financial buyers until last year."
The real-estate segment is cushioned with funds from investors and banks. Ergo, players may not reduce prices in the near future
Real-estate developers are not ready to lower the prices of their properties for end-users as they are cushioned with funds from banks and investors. The real-estate sector is flush with approximately Rs96,700 crore-Rs1,17,000 crore worth of funds, which it has raised through different means like Qualified Institutional Placements (QIPs), foreign currency convertible bonds and foreign direct investment.
“Prices won’t come down immediately because developers are utilising the funds that they have raised earlier. The correction phase will begin again, because inventories are piling up and the market has to show steady growth,” said Pankaj Kapoor, founder, Liases Foras.
According to Reserve Bank of India data, total lending by commercial banks to the real-estate sector was Rs96,701 crore from April 2009-August 2009. At present, developers are not fretting over end-user sales, as they are flush with funds; most of them have restructured their debts through the money they have raised from the markets.
“The December quarter will show 50% less sales than September because of the hike in prices. We will soon come back to the 2008 situation. I feel we will soon see sales in the Mumbai Metropolitan Region touching 12,000-10,000 units in a quarter, which is very less,” said Mr Kapoor.
End-users may have to wait for three-four months to secure properties at reasonable prices. To see a steady growth in this sector, builders will have to witness a minimum monthly sales growth of 3.5%-4.5%, considering the unsold inventories that they have in hand.
“One of the best quarters (for developers) was June 2009, when they enjoyed a healthy sales-to-inventory ratio. For the real-estate sector to exhibit a price correction, stock market valuations have to come down,” said Mr Kapoor.
Brokers say they will not boycott trading even if the bourses go ahead with their decision to start trading at 9am from 4th January, as announced earlier this month.
Stock brokers on Wednesday asked both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) to maintain the status-quo in their trading hours, until adequate infrastructure is in place, reports PTI.
However, the traders will not boycott trading even if the bourses go ahead with their decision to start trading at 9am from 4th January as announced earlier this month, the Association of National Exchange Members of India (ANMI) said.
ANMI, which claims the support of 850 members, has approached stock exchanges, regulators and the Government to look into the extension of trading hours until adequate banking infrastructure is in place.
"The Association is of the view that it is necessary to maintain status-quo on the timing, till adequate infrastructure is in place. There should not be any hurry to extend the market timing," ANMI's president EMC Palaniappan told reporters.
Even if the trading starts at 9am on Monday, ANMI will monitor the efficiency and performance of trading continuously and provide feedback to its members, Palaniappan said.
The BSE Brokers Forum, a prominent body of BSE brokers, has also asked the bourses to retain the status-quo in the current trading hours till a consensus emerges on the matter amongst various market participants.
"We appeal to both the exchanges and authorities concerned to form a committee consisting of various stakeholders to deliberate on the matter and achieve a consensus, and till such time keep in abeyance the decision to extend market timings from 4th January 2010," the Forum said in a press release, .
“After the press release by ANMI, it is quite clear that even ANMI, which represents the members of the NSE, is also of the opinion that the decision of both the exchanges to open the market at 9am should be reviewed in the interest of the capital markets,” the release added.
Reflecting the intense rivalry between the BSE and the NSE, both exchanges, earlier this month, had said that trading will start at 9 am from 4th January, nearly one hour before the current opening time, inviting protests from brokers and investors.
Although extended market hours seem inevitable in the long run, the current infrastructure and environment does not support the move, Mr Palaniappan said.
"A weak infrastructure will not be in the interest of any concerned party and investors may lose out in the short run," he said.
Citing a recent survey, ANMI said nearly 62% of its members are against the move, as extending the trading hours could put additional load on the system. However, nearly 38% members opined that extended timings will increase trading volumes.
The Association has urged the RBI to improve the banking infrastructure, as most of the banks across the country do not have RTGS facility, which is necessary for high-value transactions, he said.
The increase in trading hours at this juncture may not result in a sufficient increase in volumes, which would be essential to maintain adequate depth in execution of trades, Mr Palaniappan said, adding that a reduction in depth may act as a deterrent to investors, he said.
The move may also put undue stress on manpower, which will result in "poor productivity and costly errors" besides increasing attrition levels in the industry, he said.