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RAJESHABRAHAM
Mumbai
THIS day (September14) fiveyears ago Lehman Brothers,a large US bank, filed forbankruptcy. At the time theIndian economy was chug-
ging along nicely at over 9 per cent.India was one of the miracle
economies (along other distinguishedmembers in the BRIC bloc: Brazil, Russiaand China). Many analysts and policy-makers thought mistakenly, as itturned out that India was decoupledfrom the mortgage-led financial crisisrapidly unfolding in the US.
Indian stock markets had already fall-en from its peak hit in January that year,as foreign investors slowly began to exitIndia after the huge exposure of big WallStreet banks in risky mortgage-backed se-curities began to unravel. Indian in-vestors hoped the worst was behind.
They were wrong. The Lehman Broth-ers bankruptcy blew up in their face andthe rest, as they say, is history.
Have the five years since thenchanged anything in India? The end of2008 seemed the end of the world, as jobsbegan to disappear and businesses of
managing other peoples money itself be-came a dirty word. Thousands of jobswere lost the world over, including India;legions of Indian investment bankers,feted in the US and other financial cen-ters of the world, began to return home.
That was five years ago. Today, there isquiet optimism among those still in the fi-nance business, though many of the bighouses in the business have disappearedinto the pages of history. Many had to startafresh and several individuals, victims ofthe shakeout started their own financebusiness. Given the circumstances, theyare not doing too badly, thank you.
Five years ago, there was fear every-where, fear of the Great Depression revis-
iting. Sensex, already down nearly 34 percent (at 14,000) from its January 2008peak, crashed a month after Lehmanfiled for bankruptcy. FIIs had alreadypulled out $6.8 billion in the first ninemonths of 2008 before Lehman. AfterLehman the pullout gained momentum:$1.86billion in September itself and$2.96 billion in October. Sensex lost an-other 45 per cent to go as low as 7,697.
The fall of Lehman Brothers and thenear-death experience of other big WallStreet banks, including Citi, AmericanInternational Group (AIG) and MerrillLynch, sent shivers down the spine ofhundreds of investment bankers/broking/ back office staff in India; allthese firms had large operations here.Several lost their jobs and the crisis ledto massive restructuring or closure ofmany Wall Street firms, impacting Indiaoperations.
Only a year before (in August 2007),Lehman Brothers had made a big- splashannouncement of its India plans, buyingthe institutional equities business ofBrics Securities, a local stockbroker.
Five years down the line, Nomura,which bought Lehmans business in Asiaincluding India, has just a fixed incomeand equity business. Its investment
banking business is nearly shut, privateequity plans are on the backburner andthe back-office where the headcount wasnearly 3,000 (under Lehman) has comedown significantly.
The period between 2006 and 2008saw several Indians working in the USseeking to come back home and workhere, said Tapan Gandhi, a formerLehman employee in India, who is now aprincipal with ASK Pravi, a Mumbai-based private equity fund.
eekendWREDUCE REUSE RECYCLE
Modi anointed PM nominee
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Court orders hanging of 4 convictsfor brutal rape of 23-year-old girl 5
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Turn to P8The pitfalls & pain in India P10
Did we win or did we lose? P11We went whole hog on India until things crumbled in US P12
NOTHINGREALLY HAS CHANGED AFTER THE
WALL STREET COLLAPSE OF 2008
TRILLIONS OF DOLLAR LATER, WE ARE STILL RANGE BOUND
says SHANKAR SHARMA
SUNIL MEHTA on
HOW AIGS MANY INDIA VENTURES SURVIVE TODAY
THEREAFTER
MATTER OF INTEREST
Rajan-led RBI to review money policy on FridayExperts believe the central bank will maintain status quoin the policy rates unless the US Fed defers QE3 tapering
US CUES
All eyes of Fed move, economic dataEconomic projections will indicate the health of theeconomy and the Fed may rely on it to decide on tapering
CHINA SIGNAL
China will disclose August FDI data
A poll on Bloomberg shows analysts expect FDI growth to come
in at 12.50 per cent compared with 24.10 per cent in July
CINEFEST
Ladakh International Film FestivalDirector Aparna Sen, Paul Smaczny (Emmy winner) andMathew Robbins (Palm dOr) will be part of the jury
SUPERBIKING
San Marino MotoGPBeing back to full health, champion Jorge Lorenzo will looto defend his title at this weekends San Marino MotoGP
CINEMA
John DayAhishor Solomons debut directorial venture is a broody thril
that pits Naseeruddin Shah against Randeep Hooda
CAR MANIA
Frankfurt Auto Show
More than 1,000
exhibitors are showing
off their latest vehiclesand accessories at the
annual auto show in
Germany. The show
opened to the public on
September 12 and willbe on till September 22
S15
M16
T17
W18
T19
F20
S21
YOUR WEEK AHEAD
AP
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Gandhi had worked for BoozAllen in the US and came toIndia when Lehman startedoperations here. He leftLehman immediately afterNomura acquired the USbanks Asia operations, andstarted Forward Thinking, aconsultancy for SMEs, be-fore joining ASK Pravi in Au-gust 2010.
Today, much fewer peopleon Wall Street want to returnhome. But the cycle has notturned yet, he said, mean-ing that people are not goingback to the US.
Among the US firms inIndia, the biggest shock wasfelt in AIG, which nearly diedbefore the US governmentsbail-out. Under AIGs Indiaboss Sunil Mehta the compa-ny was fast expanding, start-ing 10 businesses here: lifeand general insurance jointventures with the Tatas, a
software development com-pany, a consumer financefirm, a home finance compa-ny, an aviation leasing busi-ness, a mutual fund busi-ness, private equity, etc.
The group employednearly 13,000 people in 300towns and cities in India.Today, only Tata AIG Life In-surance survives. All theother businesses are undernew owners after AIG of theUS went in for global re-structuring.
I had full confidence thatAIG will emerge out of thecrisis. We had very little attri-tion from our businesses
even though we were goingthrough big restructuring,said Mehta, adding thatIndia, which is now facingheadwinds from the US onthe expected withdrawal ofthe Fed Reserves easymoney policy, will alsoemerge from the slump.
He acknowledged theroles played by insuranceregulator Irda and stock mar-ket regulator Sebi in calmingthe nerves of policyholdersand mutual fund investorsduring those tumultuousdays after September 2008.
Other big names fromWall Street also had to un-
dergo drastic changes in
India. For instance, Citi-group exited its investmentsin India. It sold its captiveBPO arm to TCS for $505million in October 2008, sold
its stakes in HDFC and the45 per cent stake in Chen-nai-based Polaris Software.Pankaj Vaish, who was MDand head of equities with No-mura after it acquiredLehman, moved as head ofmarkets of Citigroup, SouthAsia in 2010.
Likewise, Merrill Lynchas part of its global strategysold its wealth manage-ment division comprisingabout 300 people in India toJulius Baer. After Bank ofAmer ica acquired the f irmglobally, Merrill Lynch sur-rendered its primary dealerlicence in India.
Hemendra Kothari, the
veteran dealmaker, who con-trolled the mutual fund busi-ness of DSP Merrill LynchFund Managers, renamedthe business DSP BlackRock
with the US partner pickingup 40 per cent.
People were obviouslyworried about their fate. Amessage was sent across toall our employees that ifBank of America is buyingMerrill, it is for a strong busi-ness reason. That messagegave some comfort to em-ployees, said a former Mer-rill Lynch official.
Morgan Stanley alsowent through global restruc-turing. But it only recentlysold its Indian wealth man-agement business to Stan-dard Chartered.
Andrew Holland who quit
as MD of DSP Merrill
Lynchs strategic risk groupto join Ambit Capital just be-fore the global financialmaelstrom, said India facedinitial shocks but continued
to grow, partly thanks to thequantitative easing pro-gramme of the Fed in the US.
The big mistake Indiamade during the time was re-lying heavily on portfolio in-flows. India should haveutilised the period to under-take structural reforms andopen the doors to foreign di-rect investment in more sec-tors, Holland said.
But all that pain yieldedone spin-off. The sudden exitof and/ or massive restruc-turing in foreign investmentbanks and brokerages helpedIndian financial servicescompanies to establish and
grow their businesses in last
five years, he said.While Ambit Capital
has grown in size and over the past five yearsother home-grown
Edelweiss also expanperhaps at the expensWall Street peers.
Rashesh Shah, fouand CEO of the Edelwgroup, said the profitabilhis group was impactethe past five years ascompany was investinnew businesses. In 200had 1,500 people; nownumber is 4,300. Earliewere in three businenow in eight, he adLehman Brothers had estake in Edelweiss NBECL Finance, which thfirm exited three years a
FINANCIAL Chronicle Weekend September 14, 2013
8
METAMARKET
From Lehmans shadowSudden exit and massive restructuring of foreign investment banks and brokeragesallowed Indian financial firms to flex muscle and grow their businesses in last five year
Continue
READY, STEADY: Though many of the big houses have disappeared into the pages of history, there's quiet optimism among those stilthe finance business. Given the circumstances, they are not doing too badly, thank you
The big mistake Indiamade during the time wasrelying heavily on portfolioinflows
It should have utilised theperiod to undertake reformsand open the FDI doors inmore sectors
But Irda and Sebi didcalm the nerves of investorsduring those tumultuousdays after September 2008
From P1
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The slowdown which we areseeing in Indian economy es-pecially in the last two yearsis mainly due to policy paral-ysis. The US is recoveringand emerging markets haveslowed down, which impact-ed our markets and curren-cy, Shah, whose company isa strong contender for abanking licence, said.
Radhika Gupta, left AQRCapital, a $20 billion hedgefund in the US to set upForefront Capital Manage-ment in Mumbai in 2009.She said that despite the up-turn in the US and the fall inIndias GDP, she has no re-grets whatsoever about herdecision to launch a busi-ness in India. She foundedForefront along with twoother Wall Street friends,Nalin Moniz from GoldmanSachs and Anant Jatia, herthen AQR colleague.
Her firm manages Rs150crore worth of assetsthrough three PMS (portfo-lio management scheme)
products. It plans to handleanother $45 millionthrough a Mauritius-basedfund for foreign investors tobe launched shortly.
Things have gone wellfor us so far here, she said.Yet she still has an eye onwhats happening in the US,no doubt, because what hap-pens there has a bearing onthe Indian markets.
The impression she getsfrom conversations withfriends in the US is that onthe ground the situation isstill not that rosy as is project-ed in media. Gupta admittedthat India was going through
a downturn, but added thatmost of the fears about theeconomy are exaggerated.
Importantly, she said theexpected tapering of thequantitative easing pro-gramme was yet to play outin the US markets. Weneed to see how this story isgoing to play out, she said.(The US stock markets areup nearly 19 per cent so farthis year while India is trad-ing flat.)
Kiran Kumar Kavikondalaleft Goldman Sachs beforethe 2008 crisis. He said thefirm was not too much im-pacted in India as it had lim-
ited operations here at the
time. Goldman Sachs camelate to India. They had sepa-rated from the joint venturewith Kotak Mahindra. Theywere mostly doing propri-etary business. They expand-ed the business in India may
be in the last two or threeyears, he said. Kavikondalajoined a small broking busi-ness, WealthRays.
Shah of Edelweiss be-lieves most of Indias currentproblems are internal,though the country benefit-ed from the quantitative eas-ing in the US. There weredoomsday predictions afterthe Lehman bankruptcy.Looking back, I think theworld has not collapsed, hesaid. The US is doing better,and if the emerging marketshave fallen behind, its due tovarious internal issues. InIndia, it is due to policy paral-
ysis, according to him.Mehta, who is now senior
advisor to Actis Private Eq-uity, pointed out that the USeconomy was on the re-bound. If this is sustained,the US government can beexpected to take a decisionin its own interest onwhether to continue to in-ject liquidity. Many emerg-ing markets, includingIndia, benefited from theexcess liquidity in the US.The mistake many of ourown policymakers made in2008-09 was they felt Indiawas decoupled. They felt the2008 crisis was only the
making of more developed
markets (and would staythere only), he said.
Holland of Ambit Capitalsaid two key factors matteredto the Indian markets andeconomy going forward. Oneis the US Fed decision on ta-
pering of quantitative easing;the second is the generalelections in India next year.
India benefited from thedomestic consumption story,but did not address the grow-ing current account deficitand other structural issues.We need to see how India,along with other emerging
markets, deals with the with-drawal of quantitative easingin the US. India is not isolat-
ed from this issue; otheremerging markets also havetheir problems, he said.
Holland said foreign in-vestors planning big invest-ments in India mightchoose to wait till after the
elections. They would waitfor clarity and direction onthe policy front.
India protected itselffrom big shock in the finan-cial crisis due to capital con-trols and other steps, big FDIannouncements will comeonly after the general elec-tions next year, he said.
According to Gandhi ofASK Pravi, India offersenough opportunitiesthough the economic growthhas slowed. If policies weremore accommodative wewould have grown muchfaster. Yet, if you look around,you see 1.3 billion people
spending and consuming.There are enough traditionalbusinesses in India whichcater to this demand andgenerate cash in theprocess, he said.
From those gloomy daysthat began in September of2008, we are much better offtoday. Sensex is back at near-ly 20,000, gaining 150 percent up from the lowest pointof 7,697 of 2008, but the Jan-uary 2008 peak is still a dis-tance away.
The bad days of 2008 areforgotten. The ghost ofLehman is finally buried.
rajeshabraham
@mydigitalfc.com
FINANCIAL Chronicle Weekend September 14, 2013
9
METAMARKET
Continued from P8
OPTIMISM TO THE FORE: With 1.3 billion people spending and consuming, India offers enough opportunities despite slowdown
Lingering ghost laid to restEconomic slowdowIndias GDP growth rate fallen post-Lehman cris
* FY08 over FY07 ** FY13 over D Sep '08 over Sep 07r Jul '13 over Jul 12Source: Bloomberg, Capitaline MEconomics. Analysed by FCRB
GDP growth rate
Lehmanperiod
Apre
WPI inflation
9.3*
10.78D
5.
5.
Lehmanperiod
Atpresent
C(I
Source: Bloomberg,
FMCG index
2,169.74 6,556.34 20
Sectoral reportDefensives enjoyed highreturn since the 2008 turm
Auto index
3,833.5 10,553.00 17
Healthcare index
3,846.13 9,143.39 13
IT index
3,418.19 7,966.49 13
CD index3,180.37 5,738.57 8
TECk index
2,727.05 4,461.36 6
Bankex
6,749.85 10,955.82 6
Sensex
13,419.52 19,214.32 4
Nifty
4,068.14 5,659.28 3
BSE midcap index
5,081.33 6,446.83 2
Oil & gas index
9,126.36 8,437.65 -
BSE smallcap index
6,050.58 5,333.12 -1
Metal index
9,826.76 8,191.32 -1
PSU index
6,430.74 5,290.17 -1
CG index
11,143.43 7,426.98 -3
Power index
2,404.75 1,430.20 -4
Realty index
3,889.69 1,217.79 -6
Ruthless selling2008 saw FIIs dumping domestic equities heavily. Octoberwas worst with outflows of a whopping Rs 15,347 crore
Figures in Rs crore Source: Bloomberg
Jan 08 Dec 08
2,0000
-2,000-4,000-6,000-8,000
-10,000-12,000-14,000-16,000
-13,035.7
-130.4Mar
-10,095.8June
-1,211.7Aug
-15,347.3Oct
1,750.1
5 years since US meltdownSensex with 43% return fared betterthan its global counterparts
38.51 37.93 37.22 35.63 35.18 19.68 19.64 10.36 6 .88 - 1.74
Chg (In %) Lehman period At present
DAX DowJones
TWSE FTSE Kospi Nikkei HangSeng
RTSI Bovespa CAC
Lehman period: Sept 15-30, 2008 At present : Sept 1-12, 2013
6,0
03.9
2
8,
315.9
7
10,9
22.
55
15,0
65.6
7
52,9
21.
33
5,
941.
58
8,1
53.2
4
4,
818.
77
6,5
35.
69
1,4
52.
84
1,
963.
91
11,7
87.
84
14,
107.
98
1,8
534.
4
22,
175.3
44
9,
515.
79
1,
226.
31
1,
353.
4
4,
116.
07
4,
044.
36
Source: Bloomberg