Thursday, December 14, 2006

Infosys and the Nasdaq-100: More than 15 minutes?

When the Nasdaq opens on Monday 18th December, Infosys Technologies Ltd., India's second-biggest IT services firm, will make history by becoming the first Indian company to enter the prestigious Nasdaq-100.

Infosys became the first Indian company to trade on the Nasdaq Stock Market in 1999. In May 2005, it raised $1.07 billion in the U.S. and Japan by selling 16 million American depositary receipts on behalf of local stockholders.

Infosys executives and directors, including CEO Nandan Nilekani, Chairman N.R. Narayana Murthy and Chief Operating Officer S. Gopalakrishnan sold 5.16 million shares in that offer, raising almost $346 million. Infosys previously sold $256 million of American depositary receipts in July 2003.

The move to enter the Nasdaq-100 will see Infosys convert as much as $1.5 billion of stock to 30 million American depositary receipts. Infosys is seeking to enter the Nasdaq-100 Index to attract funds tracking the U.S. benchmark index. The sale will increase the number of ADRs, currently valued at $51.66, to about 19% of Infosys' shares outstanding from 14%.

This is not the first time the spotlight has been on those entering – and exiting – the Nasdaq 100. As the dotcom bubble grew in 2000, companies that had their ’15 minutes of fame’ in the top 100 included Inktomi, 3Com, Palm and BroadVision.

And how about controversial pharmaceutical manufacturer ImClone, the company at the heart of the Martha Stewart insider trading case? It dropped out of the Nasdaq-100 in 2001 after it failed to get FDA approval for its drug research.

The Nasdaq-100 has always been a measure of which industry is making the biggest waves. A powerful indicator of trends, the Nasdaq-100 Index is composed of the 100 largest non-financial domestic and international stocks on the Nasdaq Stock Market. It was created in January 1985 when it was launched along with the Nasdaq Financial-100 Index, the 100 largest financial stocks on Nasdaq.

The Nasdaq-100 is re-ranked each year in December. All 100 securities in the Index are among the top eligible securities by market cap based on closing prices as of October 31, and the publicly reported total outstanding shares as of November 30.

On a cumulative price return basis, the Nasdaq-100 Index has risen over 1238.0% since inception, and it has outperformed several major domestic and international stock indexes for the ten-year period ended November 30, 2005.

For Infosys, the time is now to solidify its place as a major global stock and raise its profile internationally.

"This is one more step in our global journey," Nandan Nilekani, the chief executive officer of Infosys, told reporters in Mumbai.

But for India, Infosys’ entry into the US elite means much more, summarised by V. Balakrishnan, Infosys’ Chief Financial Officer, who said:

"This is significant for Infosys and the country. It shows India has come of age and the world is recognising India's growth.”

Infosys will join Nasdaq-100 veteran Level 3 Communications and newcomer Vertex Pharmaceuticals when the index is reshuffled next Monday.

Thursday, December 07, 2006

The IndusView Publication, Volume 2, Issue 15

India’s retail story has just begun

The Indian retail market worth $250 billion is expected to grow at a compounded rate of 30%, in the next five years. It is fast becoming an area of growing interest among global retail companies. Wal-Mart Stores Inc., the world’s largest retailer, recently announced a joint venture with Bharti Enterprises, the parent company of Bharti Airtel Ltd, the largest mobile telecom service provider in the country. See our ‘News Makers’ section for details on Wal-Mart and Bharti Enterprises’ retail foray announcement.

The agreement is expected to catalyze the growth of “organised retail” in India, which will require investments of about $60 billion by 2010, according to estimates from Department of Industrial Promotion and Policy, Ministry of Commerce & Industry, Government of India. The segment growing at the rate of 25%-30% a year is expected to see its share in the total Indian retail market grow to 15%-20% in the next decade from the current 2%. India’s real-estate sector is expected to benefit from the retail boom as we discussed in the Special Report of Volume 2 | Issue 12 of our publication.

While global companies like Wal-Mart are lining up to grab a share of the pie, domestic companies such as Pantaloon Retail (India) Ltd, country’s leading retail company with more than 100 stores in 30 cities and Shoppers’ Stop, the largest retail stores chain in India have taken the lead in showcasing modern retail to the Indian consumer.

They are followed by India’s largest industrial conglomerate Tata Group with its subsidiary Trent Ltd that operates Westside, one of India's leading chains of retail stores for garments; Reliance Industries Ltd., India's most valuable firm with a market value of $37.2 billion and diversified Aditya Birla Group have made their retail forays respectively. While the early movers will have an advantage, the opportunities in the market are big enough to accommodate others who follow.

Indo-China trade: $40 billion opportunity

The recent visit of the Chinese President Hu Jintao to India was an expected one when viewed against the backdrop of the investment opportunities of about $150 billion in India in the next 10 years in infrastructure development, power, upgrading ports and railways.

President Hu Jintao’s visit is expected to open avenues to more than double the bilateral trade between the two countries by 2010 from $20 billion last year. The two Asian economies that were until recently seen as rivals are now turning a new leaf. As a first step in this direction, India and China had opened the trade route from Nathula Pass in Sikkim, the north-eastern border state, earlier this year.

Further, the two economies which have since long served as an important market for the developed countries will continue to increase their influence in the Global arena. The combined GDP of the two countries is expected to increase five-fold to $16 trillion per year by 2020 and share in the world GDP rise to 17% from the current 7%, according to CLSA the Asian securities brokerage division of Crédit Agricole SA, the largest banking group in France.

Economic Reforms spur FDI and industrial growth

The economic reforms that were initiated by the Government of India more than a decade back are now paying dividends. This is reflected in the increased investor confidence and growth in the Indian economy at more than 9% in the quarter ended September 30, 2006, as per estimates by the Central Statistical Organisation, responsible for coordination of statistical activities in the country.

This is the sixth quarter out of the past seven that GDP growth has exceeded 8% and was among the strongest increases the country has ever recorded. The economic reforms that included the delicensing of most industries, deregulation of industries earlier monopolized by the public sector, liberalisation of foreign trade through a steady reduction in tariffs, and freeing up of the foreign investment limits in nearly all industries have shown progressive results.

The industrial growth of India touched a decade-high of almost 11% during the first six months (April 2006 to September 2006) of the current financial year compared to 8.5% in the same period last year. Although India is known for its prowess in services, its manufacturing sector grew by 12% in April-September 2006, compared with 9.5% during the same period of last year. This growth is coming out of India’s domestic enterprise and makes the same stronger for scaling global opportunities. The increased foreign direct investment (FDI) inflow will compliment the same.

Investors’ search for investment opportunities that yield exponential returns continues to be on the rise and India’s appetite for attracting incremental investments year-on-year, probably explains the record $4.4 billion FDI received during April-September 2006. The growing trend is expected to continue as the country will attract FDI worth more than $12 billion in 2006-07 as compared to $7.7 billion the previous year, according to government estimates.

This is significant as, not only is the figure twice that of the same period last year, it is the highest recorded FDI in India during any six-month period.