Poor stockmarket operators. They had better get used to walking down Dalal Street on their toes. For, market regulator SEBI is out on the prowl looking for perhaps real, but most likely imagined, bears, and suspicious-looking figures (like you?) are liable to be hauled up. Believe it or not, the intelligence bureau and raw (India's CIA, innocuously named Research and Analysis Wing) have been asked to weigh in, too. Welcome to the hands-up-the-market-is-falling era, where every slide in the bellwether index, Sensex, will likely get the stockmarket watchdog sniffing around at the offices of the big market operators (mainly FIIs). In fact, the fear of persecution is so intense that BT could not get any of the bigger players to comment on the government's new-found zeal for ghostbusting.

What has brought things to such a pass? The government's obsession with the stockmarket. Every surge in the Sensex is taken to mean a resounding endorsement of its own policy making, and every fall, a vote of no confidence. To be sure, stockmarkets, since they are forever betting on the future, are a good indication of what people who drive the economy think is in store. But more than shots of feel-good or feel-bad, what markets like is clarity in the long term. And that's what was missing on May 17, 2004, when the Sensex recorded its largest ever intra-day fall of 842 points (it closed 564 down), prompting the government's witch hunt.

A shaky coalition, still trying to work out its equation, took the fall as an insult, and not what it really was-a natural reaction to a totally unexpected electoral development, where a party, written off until days before by most pollsters, was trying to cobble an alliance with the help of communist allies. Worse, since the government hadn't been formed, the allies felt free to speak in different voices, confounding investors. The next day, stocks fell some more because sell orders had been logged into the automatic trading system earlier and these got executed as soon as the markets opened.

But this is not the first time that a government has found fault with a normal market behaviour. Earlier in February 2004, the then disinvestment minister, Arun Shourie, had threatened to go after an alleged bear cartel that was supposed to have crashed the market to sabotage the government's biggest IPO offering (ONGC). Scared out of their wits, financial institutions, banks and merchant bankers all stepped in to bail the IPO out. What Shourie forgot was that a spate of six IPOs in a span of a fortnight or so had sucked most of the money from institutional and retail investors and there simply was not enough money going around to prop up a Rs 10,500-crore IPO. (In fact, the 17.9 per cent reserved for retail investors in the ONGC IPO was only partly subscribed.) Once again, SEBI, now headed by G.N. Bajpai, was called to probe, and once again SEBI came up with nothing.

Sometimes, in the hurly-burly of the stockmarket, it is possible to give a dog a bad name and hang it. Consider Shankar Sharma of First Global. When the markets crashed on March 2, 2001, he was accused of hammering down the market based on his insider knowledge of the Tehelka scandal that erupted 11 days later. Sharma was an investor in Tehelka, and the dotcom's sting operation-which showed BJP Party president Bangaru Laxman, among others, accepting money from Tehelka reporters posing as arms dealers-not just went on to rock the government, but also poop the stockmarket's party over Finance Minister Yashwant Sinha's so-called dream budget.

With investors yet to get comfortable with the United Progressive Alliance, one can expect a volatile stockmarket and a busy SEBI-at least till the first week of July when the 2004-05 budget is likely to be presented. But what SEBI and its political bosses need to realise is that stockmarket is by nature a nervous animal. When it senses danger, it will panic. Says L.C. Gupta, Director, Society for Capital Market Research: "What the market reflects is a problem that's much wider and (SEBI) needs to address the weaknesses in the system."

There's something else the government can do to make the markets less volatile: get all parties, not just allies, to agree to a minimum programme of reform. But that's something as impossible as a stoic stockmarket.

-By Roshni Jayakar

MARKETS
Is Sensex@7000 Still a Possibility?

Risking embarrassment, three brave-and quite obviously, bullish-stockmarket experts gave us their take on the Sensex this year.

Rakesh Jhunjhunwala
TRADER-INVESTOR
SENSEX: 4,500 (LOW)-7,250 (peak)
The index will vary between 10 to 11 times earnings and 15 to 16 times earnings of Sensex stocks depending on how uncertain events like monsoon, global economies and GoI policies pan out.

Devesh Kumar
DIRECTOR (EQUITIES), ICICI SECURITIES
6,500-7,000 (2004 PEAK)
The market is nervous about the pace of reforms. But as things unfold and Manmohan Singh and P. Chidambaram are able to continue with the reforms as they did in the past and with the private sector expected to perform well, the outcome will be positive for markets.

Surjit Bhalla
MD, OXUS RESEARCH AND INVESTMENT
SENSEX: 5,800-6,000
A lot depends on the budget. However, I believe that populism is only for rhetoric purposes. The new government has no option but to continue with the reforms.

-Roshni Jayakar

SECOND
Booster Shots
Indian pharma companies of all hues are snapping up targets abroad. It doesn't just mean market access, but faster ramp-up too.
By Sahad P.V.

Last month, Dr Reddy's laboratories acquired a US-based company, Trigenesis Therapeutics for $11 million, marking its first foray into speciality drugs-in this case dermatological products. Around the same time, Wockhardt snapped up a similar-sized deal in German firm esparma GmbH, getting itself a gateway to the largest branded generics market in the European Union. Meanwhile, Ahmedabad-based Torrent Pharmaceuticals has confirmed that it is about to close a deal with a German generics company that may entail, according to its spokesperson, an investment of Rs 300 crore or so. A whole lot of more pharma companies are queuing up for their M&A foray abroad.

The rush is easily explained. Despite India's population of more than a billion, growth in the domestic market isn't anything to write home about. Since early 2000, the overall pharma market has been growing at 6 to 7 per cent, which is higher than the rates of growth in the mid-90s, but simply not enough to excite investors. So, pharma companies are increasingly tapping markets overseas to boost their growth. And acquisition, it appears, is the most preferred strategy. "It's a real positive sign. It gives them a foothold in developed markets and also a ready registration pipeline, thus saving on time," says Shahina Mukadam, a pharma analyst at HDFC Securities.

The opportunity abroad, to put it simply, is staggering. Regulated markets, which include the US, EU, and Japan, among others, offer a generics opportunity that is $50-billion big. More importantly, these are growing at much faster rates compared to India. For example, in 2003, they expanded 23 per cent and future growth, at least in the short run, is not expected to fall below 15 per cent. And that of a market at least 10 times bigger than India's. Says V.S. Vasudevan, CFO, Dr Reddy's Labs: "We will continue to use our cash to pursue strategic business development opportunities globally." (Of the lucrative global generics pie, North America accounts for 32 per cent, Western Europe 29 per cent, and Asia 20 per cent, while Eastern Europe accounts for 10 per cent and Australia 3 per cent.)

So will a whole lot of other pharma players. For instance, Sun Pharma has decided to raise $350 million through convertible debentures or bonds primarily to fund acquisitions in the US. Some other relatively small players have already become veterans at global M&As. Wockhardt's acquisition of esparma, for example, was its third abroad after CP Pharmaceuticals (2003) and Wallis Laboratories (1998). Europe now accounts for 40 per cent to Wockhardt's total sales, surpassing even the sales from India.

In April this year, mid-cap company Glenmark Pharma bought Laboratories Klinger of Brazil for $5.2 million. The Sao Paolo-based company will give Glenmark an entry to the $7-billion Brazilian market. The other dealmakers have been Zydus Cadila, which bought Alpharma of France for 5.5 million euros and Ranbaxy, which snagged French generics maker RPG Aventis for about $70 million. Thanks to Aventis, France is now Ranbaxy's biggest market in the EU.

Such acquisitions are pushing up the global revenues of Indian pharma firms. In the first quarter of calendar 2004, Ranbaxy's global sales stood at $290 million, compared to $241 million in the same quarter the previous year. Analysts expect the trend to continue. Ditto Sun Pharma. Its purchase of Caraco, a US-based firm, two years ago, has started paying off. In its first full year of operations last year, Caraco notched up $45.5 million in revenues and $11.2 million in net income. Some analysts expect Caraco to report cash profits of $22 million this year.

What makes the M&A case even more compelling for Indian pharma companies is that almost all of their targets have the regulatory approvals needed to operate in markets such as the US and EU. Besides, they have a steady distribution system. That allows the Indian buyer to leverage his biggest strength, which is great chemistry skills and low-cost manufacturing. No wonder Dalal Street is head over heels in love with pharma. The price-to-earning multiple for the bigger players is in the range of 20 to 23, while that of tier-two firms is 16-odd. The BT free-float pharma index has gained 80 per cent since May 29, 2003, compared to BT 50's rise of 54 per cent. Even at these prices, most analysts are upbeat about the industry's future.

-additional reporting by E. Kumar Sharma

MOVES
Kick-starting Asia Plans

Aiming for Asia: TVS' Venu Srinivasan

-Nitya Varadarajan

The MPV Shoot-out
General Motors' bargain-priced Tavera should have the Qualises and Scorpios worried.

Litmus test: GMI MD Aditya Vij is betting on Tavera fetching big numbers

Globally, Motown's numero uno, but a minnow in India. That's General Motors' sad tale in the country. But that could change if the American car maker's newly launched multi-purpose vehicle (MPV), Tavera, its base model priced at an enticing Rs 5.44 lakh, racks up numbers like what Toyota Kirloskar's Qualis has: 120,000 in less than four years. GM India admits that the Tavera (despite its Chevrolet badge, it's Japanese, Isuzu) is its first mass-market offering and that a lot is riding on it. Rs 500 crore in investment, 70 prototypes and 600,000 kms of testing have gone into launching Tavera in India, and GMI just can't afford to get it wrong again-not just because it has set itself the target of selling 50,000 vehicles in India (profitably, mind you) by next year. Ergo, GMI hopes to ramp up the roll-out to 2,300 Taveras a month once its new top-coat paint shop in Halol opens in February, 2005.

Meanwhile, it is readying 40 new dealers, taking the tally up to 120. Says Aditya Vij, MD, GMI, who almost lived out of a suitcase in the weeks preceding the Tavera launch last fortnight: "This is a growing segment and we have the best vehicle." More than Toyota, it should get Mahindra & Mahindra, which makes the SUV Scorpio (an SUV is a smarter looking MPV) and Tata Motors, which already has had to face stiff competition from the Qualis. While Toyota is said to be looking at a Qualis upgrade, a new launch for M&M and Tata Motors may be harder. But that shouldn't worry the MPV buyer. He's in for a good time, one way or another.

-Kushan Mitra