While India’s elections just started this week, investors and executives have been voting for months, betting billions that the country can claw its way out of its current rut.
The Sensex has reached record highs and the rupee is rallying but more encouraging this week was the fact that three companies which represent some of the biggest corporate nightmares in India—Vodafone Group PLC, Wal-Mart Stores Inc., and Ranbaxy Laboratories Ltd.—showed that despite their troubles there is still optimism about Asia’s third largest economy.
Vodafone is caught up in one of the ugliest, most drawn out and confusing battles with Indian tax authorities over billions of dollars in taxes it says it doesn’t owe. That didn’t stop the British telecommunications giant from going through with its plans to ratchet up its investment in its Indian arm. It announced Thursday that it had spent more than $1.5 billion to raise its stake in Vodafone India Ltd. to 100%.
The world’s largest retailer, Wal-Mart–after waiting for years for India to open the retail sector to more foreign investment only to find the country actually wasn’t ready to open up much–said Tuesday that it would be tripling down on its bets on India.
The company said it will boost its online presence and open between 40 and 50 new wholesale stores in India over the next four years, adding to the 20 it has today.
“We are quite committed to the Indian market and the ability to grow through that format,” Scott Price, chief executive of Wal-Mart’s Asia division, told The Wall Street Journal in an interview in Beijing.
On Monday Japan’s Daiichi Sankyo Co. announced that it was selling its stake in the troubled Ranbaxy Laboratories Ltd. to India’s Sun Pharmaceutical Industries Ltd. for around $1.8 billion in stock.
While Daiichi Sankyo’s decision to give up on Ranbaxy– which has been struggling as U.S. authorities have effectively shut down much of its manufacturing capacity by blocking much of its imports—the fact that Sun Pharma was willing to come in and snap it up for a couple of billion dollars shows hope.
Earlier this year Nissan chose India to launch its resurrected Datsun brand here. Meanwhile, bunch of big global brands—including H&M and AirAsia–have also decided to land in India this year.
Of course not all the news out of India has been great. Many foreign companies are battling a sudden surge in tax cases aimed at global players in India. The Supreme Court of India says Nokia Corp. has to pay the taxes it owes before its Indian assets can be transferred as part of its $7.5 billion deal with Microsoft Corp. Toyota has been struggling with a strike by most of its workers in India.
Should an unstable coalition–unable or unwilling to push through long-awaited economic revamping and spending on infrastructure–come to power next month all bets would be off.
Politics aside, India also still has to prove that it has convincingly lifted itself out of a painful period of stagflation.
Any sudden surge in prices or unexpected slowdown in growth could force some to reconsider their support. Executives and investors could vote with their feet and trip up the economy, the rupee and the Sensex again.
The world’s largest democracy usually goes through national elections once in five years, but people who manage money get to vote everyday on what they think is happening to India’s economy and prospects for profits.
So far this year, it looks like the smart money is on good times returning to the South Asian economy. Let’s see how it votes next month.
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