India Inc hot on Deal Street

Corporate India prowled the world in 2007, eyeing big-ticket mergers and acquisitions.

In January, after a long drawn battle, Tata Steel pipped Brazil's CSN to acquire Anglo-
Dutch steelmaker Corus for $13.2 billion. The telecom sector saw the biggest deal of the
year when British telecom major Vodafone acquired a 67% stake in Hutch-Essar at an
enterprise value of $19.3 billion.

UB Group chairman Vijay Mallya had reason to be proud; his United Spirits acquired
Scottish beverage maker Whyte and Mackay for $1.2 billion.

The Tulsi Tanti-led Suzlon Energy's acquisition of a controlling stake in Germany's RE

Power for $1.7 billion brought more cheer to India. Indian Hotels' acquisition of the Ritz-
Carlton, Boston, hotel, USA Tata Coffee's buyout of the coffee chain in the US, Eight
O'Clock, added more glitter to India's M&A kitty.

The total value of mergers and acquisitions (M&A) and private equity (PE) deals in India
Inc till October zoomed to a whopping $63.5 billion compared to $30.3 billion in the
same period last year.

The biggest overseas acquisition by an Indian IT company this year was Wipro's takeover
of Infocrossing Inc along with subsidiaries in the US for $600 million. This was followed
by Firstsource Solutions' acquisition of MedAssist Holdings in the US for $330 billion.

The volume of M&A deals rose 53% to 582 till October and the average size of M&A
deals increased from $64 million to $85 million this year.

India Inc basked in the glory of 34 cross-border deals, PE funds struck 43 deals with an
announced value of $1.81 billion in October. Indian companies sealed as many as 34
cross-border mergers & acquisitions during 2007. Private equity investments, involving
43 Indian firms, shot up to $1.8 billion during the year.

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A land of shoppers

India has been witnessing a retail boom in recent years, but never more so than in 2007.

India topped the AT Kearney's annual Global Retail Development Index in 2007,
emerging as the most attractive market for retail investment.

The Indian retail market -- one of the country's fastest growing businesses -- is expected
to grow from $350 billion to $427 billion by 2010.

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Driven by changing lifestyles, strong income growth and favourable demographic
patterns, Indian retail is expanding at a rapid pace. Some large players include Kishore
Biyani's Food Bazaar, Mukesh Ambani's Reliance Fresh, Godrej Agrovet, the Aditya
Birla Group's More and the Tata Group. The Bharti group too plans to enter this sector in
alliance with the world's largest retailer, Wal-Mart.

Organised retailing is growing at 20% a year and many Indian business houses and
foreign retailers are salivating at the prospect of wooing the Indian middle class.

And despite the palpable excitement that sweeps urban India with malls mushrooming in
every nook and corner, the retail revolution hasn't quite gripped Bharat, aka rural India,
which explains why the share of the 'organised' retail is a low 4 per cent of the nation's
total consumer spending. But this is expected to increase to about 15 to 20% with the
entry of a number of corporates into the segment.

The fastest growing telecom market in the world

It has been an exciting year for India's telecom sector.

The fastest growing telecom market in the world saw an addition of 7 million mobile
telephone subscribers every month.

Vodafone's buyout of Hutch-Essar, the scramble for new telecom licenses and further fall
in tariffs were the other highlights of the sector in 2007.

India now has 250 million telephone subscribers. September saw an addition of 7.64
million telephone connections. The overall teledensity reached 21.85 per cent in
September as against 21.20 per cent in August.

Steering India towards a new level of wireless telephony, the government announced the
release of spectrum for 'third generation' (3G) mobile services. But cellular operators are
currently at war over spectrum allocation norms. The government has also promised to
introduce number portability which allows users to switch operators while retaining cell
phone numbers.

About 46 companies have submitted 575 applications for new telecom licences. Real
estate companies DLF, Unitech, Parsvnath Developers, Omaxe and Indiabulls Real Estate
are among the applicants!

The year also saw the exit of IT & Communications Minister Dayanidhi Maran, paving
the way for A Raja to take over. During Maran's tenure, foreign direct investment cap in
telecom increased to 74 percent. Access deficit charges were slashed which lead to a fall
in mobile tariffs.

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And the big ticket deal of the year -- in February, British telecom company Vodafone
acquired a 67% stake in Hutch-Essar at an enterprise value of $19.3 billion.

The rupee rises, and how

As foreign institutional investors started pumping dollars into the Indian economy the
value of the rupee soared as if there is no tomorrow. The Indian rupee hit a nine-year high
against the dollar on September 21.

Experts speculate that soon Indians will be able to buy one US dollar for as less as Rs 37.
And while this may prove to be a boon for some, others will be equally hurt by the
strengthening Indian currency.

Who gains and who loses? As the rupee rises, Indian exports firms earn less and thus
begin to lose their competitive edge -- be it textiles, jewellery, software, pharmaceuticals
or automobiles. Earlier, if an exporter got Rs 41 for every dollar he earned, he will now
receive only Rs 39. That is, a loss of Rs 2 for every dollar earned.

India's big software four -- Infosys, TCS, Wipro and Satyam -- have already seen their net
income fall due to the sharp rupee rise. This is because software companies bill most of
their clients in dollar terms.

However, for travellers and students, it is happy times. Students and travellers going
abroad (especially to the United States) will have to spend fewer rupees for every dollar
they purchase for their vacation or stay abroad. The rates of international tickets too drop
as the cost of aviation turbine fuel drops and students going to US universities pay less as
tuition fees.

For the economy, the rise of the rupee spells good times as the country is a big oil
importer. India imports 70 to 75% of its oil requirements. Even if the cost of oil per barrel
has hit record highs in recent times, the appreciating rupee helps to counter the price rise.
As India pays in dollars for its oil imports, the cost lowers significantly as the rupee gains
in strength.

If at $84 to a barrel India would pay Rs 3,444 (assuming a dollar rupee rate of Rs 41) for
every barrel, at Rs 39.91 India will have to pay only Rs 3,352 for every barrel, a gain of
Rs 91.

The rupee rise also helps to tame inflation. For apart from oil, India imports a number of
other things. With the rupee rising, exporters are now keener to sell their product/services
locally, if possible. This would increase local supplies and lower prices and inflation.

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The fastest-growing aviation market

2007 was one of the best years for Indian airlines. The largest deal in India's aviation
history was witnessed in April, when after months of legal battles, Jet Airways finally
acquired Air Sahara for Rs 1,450 crore (Rs 14.50 billion). Jet now operates Air Sahara as
a separate airline under a new brand name, Jet Lite. Jet and Jet Lite have a combined
domestic market share of about 29.4%.

In March, the government gave its final nod to the mega-merger of state-run carriers Air
India and Indian. The merger turns the new entity into a large airline, with a combined
fleet of about 120 aircraft and a staff strength of 30,000. Air India-Indian combine has a
market share of 19.8%.

Vijay Mallya's Kingfisher Airlines bought a 26% stake in Deccan Aviation for Rs 550
crore (Rs 5.50 billion) in June, strengthening his presence in the space. After the Deccan
buyout, the combine commands a market share of about 28.9%, inching close to Jet
Airways.

Air Deccan, India's first budget airline, is now rebranded as 'SimpliFly Deccan.' Deccan
will complete five years of domestic operations by the middle of next year and will be
eligible for international operations. Kingfisher's rise in just two years is a now a big
challenge for the 14-year-old Jet Airways.

Meanwhile, passenger traffic is booming. It registered a 36.47% growth to 317.29 lakh

(3.172 million) passengers in the first three quarters of 2007. India is today the world's
fastest-growing aviation market. Domestic passenger traffic is expected to double to 60
million by 2010 and reach 200 million by 2020.

The land of controversy

December 5, 2007

Singur, a small town in the Hooghly district of West Bengal, hit the headlines after West
Bengal's ruling Left Front government acquired 997 acres (404 hectares) of multi-crop
land in the area on December 31, 2006, for Tata Motors to set up a car factory.

The process of land acquisition in Singur began with the publication of a notification
under Section 4 of the Land Acquisition Act 1894. Payment of compensation in
accordance with the award began on September 25, 2006 and is still continuing.
Questions have been raised about the Left Front's alleged forcible acquisition made under
the Land Acquisition Act 1894. According to Left Front detractors, provisions of this Act
have not been met.

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Making political capital: Opposition parties in West Bengal cashed in on this
opportunity to take on the state government. The Singur imbroglio took a serious turn
when the West Bengal government sent in a police party who fired teargas shells to chase
away protesting villagers on February 7. About 100 activists, including villagers and
members of the Krishi Jami Raksha Committee (Save Farmland Committee), had entered
the fenced-off area at the Tata Motors small car project site and uprooted 14 fencing
posts.

The current situation: Tata Motors's small car is scheduled to roll out of the Singur
factory by mid-2008. The car may mark a watershed event in India's automobile industry,
and if all goes well, Singur could become a mini-auto city.

More than 70 vendors will be able to set up shops along with the Tatas factory. The
project has brought in an initial investment of Rs 1,000 crore (Rs 10 billion) and is
expected to generate additional revenue of about Rs 450 crore (Rs 4.5 billion) for the
state government and employment for over 7,500 people.

The Realty boom

India has seen an unprecedented real estate boom in recent years, but never more so than
in 2007.

With real estate prices in the metros soaring, developers are now looking at greener
pastures in tier II and tier III cities like Chandigarh, Bhubaneswar, Kochi, Ahmedabad,
Nagpur and Mysore.

"The focus is now on other closer-to-Delhi cities of Haryana as the development policies
there are very conducive for real estate development. For around Rs 20 lakh, a middle
class person can get a luxury apartment," real estate developer Sunil Anand earlier told
rediff.com

These emerging growth centres are characterised by low real estate costs, availability of
land for development and untapped manpower pool. 'Anticipating the latent demand in
these markets, a number of real estate developers and retailers have chalked out
expansive plans to harness the opportunity,' states a Knight Frank report.

A number of micro and macro factors like sustaining GDP growth, expanding the service
sector, rising purchasing power and affluence are also aiding realty development in Tier II
cities.

Realty is spreading its tentacles to smaller towns, thanks to the IT/ITES (Information
Technology Enabled Services) sector as well. Considering that IT/ITES contributes
nearly 80% of total office space in smaller cities, this sector has been the main demand
driver in these cities, the Knight Frank report adds.

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Thanks to the real estate growth in small cities, India's realty sector is growing at a
scorching 30% and is estimated to touch $60 billion by 2010. The sector has caught the
fancy of global realtors and investors from several international developers, primarily
from West Asia, South-East Asia and Europe.

An auto hub!

One would hardly have associated India with hot manufacturing activity, least so in the
automobile sector. But in 2007, India increasingly emerged as a production and sales hub
for major car manufacturers, with international giants like Honda, Toyota and
Volkswagen pulling out their drawing boards for an all-new India-specific car model.

The primary reason that manufacturers have opted for a new car model for India is to
make use of low cost manufacturing expertise and also to qualify for small car norms.

Globally, India is looked upon as a hub for small cars. Almost 87% of all cars owned in
India are small economy cars, thanks to Maruti and Hyundai.

With Indians now flush with more disposable cash, overseas auto makers plan to
introduce a host of new luxury cars into the country. This sudden spurt follows the lifting
of many curbs on the auto sector by the government.

One of the first to announce plans was Honda Siel Car India, also the leading Japanese
player in India. The idea of benefiting from the small car norms has attracted Toyota and
Volkswagen too. Toyota, which had restricted itself to the mid-sized sedan market, has
decided to foray into small cars by 2009. Sources say the company is developing a
completely new car codenamed 800L at an undisclosed facility outside India and Japan.

Ford India is said to be working on a small car for the country, but its plans remain
unclear. With a small car in its portfolio, it can target buyers on a much larger scale.

Volkswagen, owners of luxury brands like the Bentley, Lamborghini and Bugatti is also
working on a small car for India.

The lure of emerging markets like India have forced global players to look for new
models that complement market sentiment and at the same time fall within the affordable
price bracket of $8,500 (about Rs 3.5 lakh).

Korean car maker Hyundai has just launched the i10 in India. The company intends to
make India the production hub for the i10.

Triggered by the buoyant small car market, the companies want to increase their market
share to about 10% by 2010 from the current 3 to 4%. Toyota, Honda and Volkswagen
have forecasted optimistic growth post their small car launches in 2009.