All About the Right Fit

Yesterday’s legend–A Prince has a shoe left be hind by the woman of his

dreams in the previous night’s rush. He goes around trying to find the foot

that fits it perfectly and delivers him his Princess. He tries the shoe on one

and all, but to no avail, till he comes across a tender little foot that does

fit in snug and tight…he has his Cinderella.

Today’s reality–Conditions are perfect for IT companies to make good on

their acquisition plans. The market is as near bottom as it ever will be,

companies are flush with funds, and valuations are at never-before nadirs. But

IT companies prefer to wait and watch, rather than rush in and repent. Their

logic–it is all about the right fit, and a wrong ’un could well spring a

googly that may result in bringing down the existing edifice. So wait and watch

it is.

Ours is a country where hamburger chains and umbrella manufacturers are

allowed to invest in private airlines, but proven airline companies with

established track records and years of experience in the trade are barred from

doing so. Ours is a land where monkey-men rule dark evenings in suburban areas,

inspiring doctors to fill surgical gloves with red ink and hurl them on the

streets from upper storeys. Ours again is a land where our chosen

Parliamentarians allow critical legislation like Fema to straggle for years just

because their opposing parties overlooked some minor technicalities. And

finally, ours is a stock market where scams are detected and policed only after

they reach devastating proportions and small investors are robbed overnight of a

lifetime’s savings and investments.

It is all happening in India, but lest we conclude that negatives are all

that happen here, let’s look again. We have our Anands, Paes-Bhupathis,

Gopichands and Tendulkars to do us proud in the sports arena. We have enough

heritage to rave about for another 20 centuries. We have our dabbawallahs and

local trains and trams and rosogollahs with which to feel the India in Indianism.

And for the most happening, we have an IT sector that continues to boom, even as

the US–our biggest bread-basket–reels under the force of its first-ever

tech-led slowdown.

Despite the fact that the Sensex scrips have lost over 10% of their market

cap in the past few weeks, and though small and specialized companies can be

gobbled up for a fraction of their cost just a few months back, the acquirers–those

guys with the money muscle–are taking it nice and easy and playing careful. As

Azim Premji writes elsewhere in this issue, Wipro is not likely to go off on an

acquisition spree just to prove its courage. As Nandan Nilekani says, Infosys

will not buy any unit just to add to its bottom-line. As Ganesh Natarajan says,

non-integration with the acquired company could spell disaster for Zensar, or

any acquiring company. And to quote Ashank Desai, cultural issues are as

critical in buyouts to Mastek as business considerations.

And perhaps therein lies the recipe that has got India IT Inc so far in the

last decade. These statements, coupled with the absence of any buys so far,

reflect the planning and caution that have led to the careful mushrooming of the

IT industry. It also bespeaks the IT leadership that we have, and the reason

that Indian IT professionals are so coveted worldwide. And it sends a clear and

strong signal to stock market players–planning and caution.

For those that have rushed into the market–and got their fingers burnt, but

rushed in again later, a slave to the high of a win–this is a wake-up call.

Plan your portfolios to have balanced portions of ‘high-return and high-risk’

and ‘low returns but steady’ investment options, check out the antecedents

of the promoters before ploughing in your money, weigh the industry segment you

are investing in on a scale that has your expected returns on the other side,

and keep watching the progress carefully…adopt wisdom and caution and

foresight, your sureshot method to outguessing the Harshads, Bhansalis and

Parekhs who prey on the system.

Rajeev Narayan