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June 2013

HUL signals India’s Strong Prospects

By Tarunkumar Singhal, Raman Jokhakar, Chartered Accountants
Reading Time 2 mins
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India does not require a certificate from the IMF or discredited credit-rating agencies, saying that its economy has excellent prospects. That certificate has already come, in the form of a cheque worth a staggering $5.4 billion, signed by the bosses of Unilever, the Anglo-Dutch giant. The money will enable Unilever to buy a dominant 75% stake in its Indian counterpart, HUL. This is excellent news for policymakers in India.

Without any prodding, hard-headed European businessmen have decided to put their money where they believe future global growth will originate. Not in Europe, but in India. Remember, Unilever already had control of HUL, with its existing 52.5% equity. So, the main reason for pumping in the money is to invest in future growth and to get a bigger share of the dividends that will come with it. And, HUL is only the latest in what is proving to be a trend of large multinationals hiking stakes in their Indian arms.

Over the last few years, German engineering giant Siemens, Swiss major ABB, drugmaker GlaxoSmithKline and several others have bought larger stakes in their Indian arms. Expect others, like Colgate-Palmolive and Suzuki, to follow suit. Indian regulations let each parent to raise its stake up to 75%.

Some people fret that these could lead to a delisting of HUL and the other multinationals. However, these fears could prove to be baseless. Once listed in India, our takeover and tax rules make it near-impossible for a company to delist. Even if some ingenious accountants finds a way for some to get off our bourses, as they did with Cadbury, that would be no great tragedy.

Though multinational stocks have been steady performers, to develop a vibrant equity culture, India needs more local companies that operate for the long term, without worrying much about the quarterly opinions of analysts. Once our companies start thinking long term, without looking over their shoulders all the time, the equity market will become vibrant and robust.

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