20000208

Banker forecasts India Inc consolidation

HYDERABAD: Rapid consolidation in India's petrochemicals, steel and pharmaceutical sectors is likely in the next few years due to increasing foreign competition, the chairman of JM Morgan Stanley said.

"I think the message is very clear. In the next 2-3 years, there is going to be more and more consolidation," said Nimesh Kampani, who heads the joint venture between Morgan Stanley and JM Financial Consultancy Services.

"Anywhere in the world, there are only a few players in major industries," the investment banker told Reuters at the weekend.

These industries cannot sustain the presence of a larger number of players because it will lead to fragmentation when economies of scale are needed, he said.

India's corporate sector saw a wave of mergers and acquisitions last year, especially in the cement, consumer durables and pharmaceuticals sectors.

He said India's booming information technology (IT) sector could also see smaller players and new entrants being acquired by bigger players.

"There are lots of software services firms which are starting businesses. You will see consolidation take place in this area in the next few years," Kampani said.

"It is not that everyone is going to be successful, especially when you look at e-commerce and the Internet businesses."

GROWTH RATES SPUR IT VALUATIONS

Kampani said the consistently high growth rates recorded by India's IT sector were driving up the valuations of these companies and there was scope for further growth.

"We are seeing the share of India in software and IT businesses growing substantially. There is still a lot of potential for growth in the software sector," he said.

High growth rates achieved by the IT industry were attracting more and more investors to the sector.

But growth rates in industries like cement, automobiles and aluminium were also picking up, Kampani said.

Shares of IT companies have been among the star performers in Indian stock markets last year, with media sector shares also making a good showing.

"The IT sector is earning 70-80 percent growth in profit and that's huge, on a compounded basis. Other sectors are not growing like that," Kampani said.

He said apart from the IT industry, investors should also look at telecommunications, media and entertainment.

"These are the industries of the future," Kampani said. -Reuters