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

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