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The Equitymaster Research Digest

Why Are Indian Companies Selling Assets Like It's 1991?
Nov 15, 2016

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It's being hailed as the biggest and boldest move by any government since the 1991 reforms. Its impact on black money could be deep. But demonitisation alone won't be a game changer for corporates. Businesses will need to take initiative if they want to improve productivity and efficiency.

Amid the din of the currency ban, widespread asset sales at India Inc are going largely unnoticed. Indian companies haven't put on this big of a sale since 1991. But a quarter of a century later, they're doing it for very different reasons this time.

When India opened up in 1991, everyone wanted a share of the pie. Asset sales were for foreign investors who wanted to benefit from India's growth story.

This time around, the economy is deleveraging. Big time. Companies need to find ways to wipe huge debt off their books. (Incidentally, disagreement over how to deal with debt is at the heart of the Tata-Mistry saga.) Asset sales may offer a bit of a breather to corporates strapped for funds. But unlike 25 years ago, these will not be the recourse to better technology, new markets, and new products.

Big asset sales are expected to improve the debt-servicing capabilities of some large corporates. But they aren't likely to solve the two biggest reasons for anemic economic growth. The pace of investment in Indian companies continues to be staid. And even after the asset selling binge, banks will still struggle with bad loans (NPAs).

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