Indian Banks Ripe for the Picking
A lot of smart money seems to end up in India nowadays, don't you think? China's economy already took off. And India, it seems, is following suitIndia's arrival as the developed world's biggest back office already spurted the IT boom--think Infosys and Satyam--big, big winners last year--until the outsourcing backlash here at home put a halt to the party. Robust growth in other sectors such as manufacturing consumer goods are catapulting GDP growth off the meter. A widely quoted report by Goldman Sachs says India will eventually become the world's third largest economy after China and the U.S by 2011, equaling and then surpassing China's. India's population also will likely pass China's.
India is still largely an entity of me-no-have. Average per-capita income is $500 a year. About 35% of the population live in poverty. But as China did, India's government is making strides to improve creaky infrastructure and privatize government-dominated industries. India's stock market rose about 80% in 2003. Part of that was a result of India's foreign exchange reserves touching $30 billion in the last year to $100 billion, leading Moody's Investors Service (MCO) in late January to upgrade India's long-term foreign currency ratings to investment grade for the first time. Huge! Job growth in tech services is already fueling a rapidly growing consumer class--sales of autos, computers and cell phones are balooning. Diesel engine maker CYD (China Yuchai) was a fave of mine in 2003. They supplied all the engines for the buses everyone rode to work.
One of the cornerstones of modernization includes the rapid proliferation of a banking system. Think about it--people want to build--they have to borrow money. Banks lend--it's what they do. Now, changes allowing greater foreign ownership to help rescue India’s ailing private banks are making headlines once again.
Up until now, 2 factors were hindering bank consolidation in India. Nearly 80% of the market used to be out of limits for acquirers because foreign direct investment in the 27 giant state banks couldn't exceed 20%. Back in February of '02 the rules restricting foreign ownership in Indian private sector banks were eased, raising hopes of consolidation among India’s 32 private banks. Foreign banks – including the 38 that have operations in India – could now possess up to 49% of a private bank. A Merrill Lynch research report published in 2002 hailed India’s banking sector as one of the most distraught in the locale – with nearly 80 of the 97 banks having a market share of less than 2% – and hence begging for an M&A beating.
Clearly, India is opening up. India's "unwieldy democratic government" -with its socialist ethos - has gradually loosened up and eased regulations. Doors are opening to foreign investors. The Kafkan transformation of an agricultural and cash-based economy to a sizzling service economy comprised of the middle class should serve investors well for a while more, I reckon.
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