It's a paradox that's good enough to bamboozle the most earnest of market watchers: The Chinese economy is three times India's, the export market's eight times larger, and foreign direct investment is nearly 12 times what India attracts. Yet, India attracts a little over two and a half times what China does in portfolio investments in its stockmarkets. Over the past three years (till November), the world's fastest growing economy has pulled in $10 billion (Rs 45,000 crore) from foreign institutional investors (FIIs). The corresponding figure for India is close to $26 billion (Rs 1,17,000 crore). As on September 2006, the average turnover recorded on the Chinese stock exchange stood at 314.2 yuan (Rs 1,781.5 crore), which is not even one-fifth of the total average recorded by the Indian bourses (the combined average turnover of NSE and BSE stood at Rs 10,283.4 crore).

"Government restrictions is the reason for low inflows," says Jing Ulrich, Chairman (China Equities), JP Morgan, who however expects a relaxation in investment norms soon. For instance, 40 of the 48 qualified FIIs (or QFIIs) in China have a combined investment quota of $8.05 billion (Rs 36,225 crore). As per industry sources, the largest FII operating in India, HSBC, is estimated to have an exposure of $7.5 billion (Rs 33,750 crore) to Indian equities. This is followed by JP Morgan ($6.5 billion or Rs 29,250 crore) and Fidelity ($5.5 billion or Rs 24,750 crore). Interestingly JP Morgan, which manages $6.5 billion in India, has investments of just around $150 million (Rs 675 crore) in China, so far.

That the Chinese markets are illiquid and highly-regulated would have contributed to subdued interest. Chinese markets are also considered a high-risk proposition, with rumour ruling the roost. Also, two-thirds of the 1,400-odd listed stocks are government-owned and illiquid. Yet, Chinese equities haven't done too badly for themselves, clocking a 64 per cent run-up so far in 2006 (the Sensex till November 10 had gained 42 per cent). Valuations too look more reasonable in China (see A Tale of Two Markets). If the government does further liberalise its stockmarkets, FIIs may well place larger bets more closely at Chinese equities. As of today, though, the foreign investing tribe clearly prefers India.

-Mahesh Nayak

Single, and Paid to Mingle
Can dating allowances be hazardous to existing liaisons?

It services major Wipro Technologies is used to making the headlines, but last fortnight was one time it wished it hadn't. That's when reports began flying thick and fast that an employee's wife was threatening legal action against Chairman Azim Premji, and a Wipro Vice President. Reason? The good wife was reportedly upset that her husband had left her, seduced in no small measure by the company's 'dating allowance.'

When Business Today contacted Wipro's head office in Bangalore, an official spokesperson denied the fact that Wipro ever had a dating allowance. "Never in the history of the company have we had such an allowance, so there is no question of us reacting to the allegations. Besides, we have not received any communication from the courts," the spokesperson said.

Wipro may not have such an allowance, but it isn't uncommon in the Indian IT sector. One it company that does have a dating allowance since 1991 is NIIT Technologies, the aim being to participate in the lives of its employees and also encourage marriages within the company.

"The average age of a person here is 26-27 and we understand what is important in their lives, so this is a gesture in that direction," says Vijay Thadani, CEO, NIIT Technologies, adding that the dating allowance for married employees is meant to be "spent on the spouse." That part may need to be highlighted henceforth.

-Shivani Lath

High Hopes on Hybrid
To increase rice output, India needs more hybrid cultivation.

Taking stock of Indian agriculture: The future is hybrid

From just 10,000 hectares in 1995, hybrid rice is today cultivated over a million hectares (hybrids are produced by crossing two varieties of a crop). The quantity of seeds produced has risen to 20,000 tonnes from just 4,000 tonnes in 2003. And some 30 companies, 90 per cent of them in the private sector, are registering robust growth-along with a market that's expected to become as large as 50,000 tonnes (expected requirement for hybrid seeds) by 2010. If that appears big, consider China, which has 15 million hectares under hybrid rice-which makes up nearly half of its total area under cultivation.

The China perspective is encouraging from the point of the potential that exists for Indian producers of hybrid rice. One of the main drivers for future growth is sheer demand for rice itself. "Hybrid rice is an option that could come handy at a time when (in keeping with the population growth trends) India will have to increase rice production by at least 2 million tonnes (mt) per year if it has to get to 106 mt by 2011-12 (current production is 88 mt over 42 million hectares)," says B.C. Viraktamath, Project Director at the Directorate of Rice Research, located in Hyderabad. That's where the China example comes handy, as the hybrid route played a big role in helping that country achieve food security. But then, China began in 1964; India began hybrid rice cultivation only in end-1989.

Yet, India is only the second country in the world to develop and commercialise hybrid rice (after China). Since then, a clutch of companies, including Bayer Crop Science group company Proagro Seed, Maharashtra Hybrid Seed Co (Mahyco), DuPont subsidiary Pioneer Hi-Bred, United Phosphorus (through Advanta India), DCM Shriram's Shriram Bioseed Genetics India, and JK Agri-Genetics, has been doing its bit to increase the share of hybrid cultivation in overall rice output. But it is all not quite rosy. One of the problems facing the spread of hybrid rice market is its lower acceptability in some regions of south India, due to issues like stickiness and aroma. (To deal with this, Proagro, for instance, is working on new varieties to suit local taste. Its latest version '6129 hybrid' is believed to be closest to the popular 'Sona Masuri'.) Then, the yield advantage in some hybrids is marginal and believed to be inconsistent across regions. The high cost of seeds (and fresh purchases each season) is yet another dampener. But, as M. Ilyas Ahmed, Principal Scientist at the Directorate of Rice Research, points out, China has delivered on the hybrid rice front and, if India has to deliver on the targets set for rice output, hybrid rice is an option that cannot be ignored.

-E. Kumar Sharma

Walking into a Buyout
PE funds roping in industry pros for management bandwidth.

In the west, a private equity (PE) fund and a buyout fund are easily interchangeable. With good reason. Close to 62 per cent of the funds raised in 2005 in the US were for buyouts (venture funds were the second largest category at 17 per cent). In Europe, 80 per cent of the funds are dedicated to buyouts. Indeed, the big global PE funds like Kolberg Kravis Roberts & Co. (KKR), Blackstone, Newbridge and Carlyle are now all in India, but buyouts haven't quite followed. Most transactions are for minority stakes in companies, for cash that goes into growing the business, without tinkering with management control. Such expansion capital deals account for over 90 per cent of all PE transactions in India.

Yet, there seem to be signs of the emergence of a nascent buyout market in India. A slew of small to medium sized buyout deals have been announced recently. The home grown ICICI Ventures, UK-based Actis and Malaysian fund Navis Capital together have closed a total of 10 small to medium sized deals amounting to over Rs 1,000 crore over the last couple of years. GAP and OakHill's buyout of GE's BPO Genpact in 2004 and KKR's buyout of Flextronics in 2006 have been the only two big ticket buyouts (see A Beginning for Buyouts).

What is driving this gradual but sure shift? One key reason, say fund managers, is companies today are looking to exit businesses they don't consider core any more. "All the buyouts we have done are great businesses but ones that do not fit in with the company's future strategy," says Renuka Ramnath, MD and CEO of ICICI Venture Funds Management Company, which has closed four buyout deals so far-Tata Infomedia, acc Refractories, Ranbaxy Fine Chemicals and VA Tech WABAG India for a total of Rs 500 crore.

As a logical evolution in the market, PE funds are now looking out for managers from industry who can help in creating buyout opportunities and attract the right team. While some funds hire professionals, others work with an advisory panel of industry experts to leverage their network. Sanjeev Sharma, former MD of Nokia India, for instance, was roped in by Actis to head Phoenix Lamps, which the fund acquired earlier this year. "We identify people in sectors we want to do management buy-ins and then go about looking for deals. This ensures that the person who will head the company has a thorough knowledge of the business before he gets into the hot seat," says Actis Partner J.M. Trivedi, who also has in the fund's network former Diageo India head Deepak Roy to help in the foods and beverages space.

Just as Sharma's presence enabled Actis to walk into Phoenix Lamps with management expertise in tow, other PE funds too are hiring industry professionals. Former Wipro Technologies CEO Vivek Paul is now with the Texas Pacific Group; Mohit Bhatnagar moved from Bharti Airtel into Sequoia Capital India; and Akshaya Bhargava moved from Infosys' BPO Progeon to 3i as did Euro RSCG's head honcho Ishan Raina. "As entrepreneur in residence I will, along with 3i, identify projects in the media space and make investments to the tune of $20-40 million (Rs 90-180 crore)," Raina told Business Today after he moved to 3i.

Such career shifts appear to be win-win situations for all. While the professional gets an opportunity to become entrepreneur, it is a shot in the arm for a fund looking to do buyouts. "For us, nothing is more valuable than experienced human capital. They help create value," says Ramnath, adding that, "In three of the buyouts, barring Infomedia, we have retained the original management. We look at diversification, growth opportunities, and bringing in other partners, rather than getting into operational duties." For the moment, though, as the likes of Blackstone, Carlyle Buyout Fund and Newbridge will testify, finding industry professionals could well prove a bit easier than finding large-size buyout deals. They can take heart from Korea's experience, which transformed from being a development capital market in 1998 into a buyouts market by 2005. Of course, the South East Asian crisis was the main reason for the transformation. The buyout funds in India must be hoping for something less dramatic as a catalyst for change.

-Shivani Lath