India’s stock market is “in the middle of a mania”, says Manish Chokhani, executive director of Enam Securities, one of Mumbai’s leading brokerages. “It’s stupid days in India – a bubble zone,” he told me this morning, commenting on the 30-stock Bombay Stock Exchange’s Sensex index rush past 19,000 yesterday. That was a rise of 1,000 in five trading days, the fastest ever, and over 3,000 points higher than a month ago – all record highs driven by massive inflows of foreign money totaling some $7 billion over the past month.
I had rung Chokhani to ask whether it was despite (or because of) such inflated bull market prices that Nomura, the Japanese investment bank, was reported to have withdrawn from talks to buy a substantial chunk of his firm. Nomura declined to comment on the reports, which are well founded according to Mumbai sources, and Chokhani would neither confirm nor deny that Nomura had made a bid and had now withdrawn.
Chokhani also would not comment on rumors that Enam’s price had been too high for Nomura, but he did say that the firm was worth well in excess of $1 billion, judging by a recent $700 million IPO valuation on Motilal Oswal, a smaller Mumbai securities firm.
There has been a big foreign rush to grab a slice of the action in Mumbai as prices have soared. Big names like Merrill Lynch (MER), Morgan Stanley (MS) and Goldman Sachs (GS) have had local relationships for many years, though these have changed with time. In February, Morgan Stanley bought out the 50% stake held by its partner, JM Financial, in a brokerage joint venture. Standard Chartered, Lehman Brothers (LEH), BNP Paribas, and various private equity firms including a Citi (C) venture capital fund, have been involved in smaller deals.
So the market was watching Nomura’s courtship of Enam to see what would happen to such a prominent firm – it was involved in mobilizing over $24 billion institutional and retail funds for share issues in 2006-07, leading the market with a 25%-30% share. Now that this deal appears to be off, the next marker is an imminent IPO by Edelweiss, another leading brokerage and investment bank, which is expected to be valued at well over $1 billion.
With such figures around, it seems that Mumbai’s leading brokers find it difficult to fade away. Hemendra Kothari, the doyen, still plays a leading role as chairman in DSP Merrill Lynch, a relationship he started building 20 years ago. Nimesh Kampani, chairman of JM Financial, one of Mumbai’s top two firms, is rebuilding his business following the Morgan Stanley buyout.
As market activity escalates, people such as Vallabh Bhanshali, the chairman of Enam, would probably rather retain control than sell their souls and their future to a foreign bidder – especially when rocketing valuations can make today’s prices look silly tomorrow. Enam has in the past been pursed by Rothschild, J.P.Morgan, and Lehman as well as Nomura. “We are very wealthy people and have no reason to sell,” said Chokhani, adding that Enam would rather broaden the base of its ownership to include staff than sell to an outsider.
Foreign money has no doubt been attracted into the market in recent weeks by the prospect of India’s proposed nuclear deal with America, which would have stimulated business between the two countries. But it did not seem to be too worried that Manmohan Singh, the Indian prime minister, confirmed in a phone call to George W.Bush on Monday that the deal would not be going ahead in the foreseeable future because of a lack of political support.
Lehman offset that news today by saying that India’s economy has the potential to grow at 10% or more over the coming decade, with the equity market outperforming other developed and emerging market indices over the next five years. That is good news for the Mumbai players.