Friday, October 23, 2009

Murthy to be venture capitalist and I wonder why now

Economic Times reports that NRN Murthy has sold 180 crore of Infosys shares to start a VC firm in India which will invest in startups focussed on basic healthcare, education and nutrition.

The cynic in me says that this is a cooked up headline to justify the selling of Infosys shares which I believe is poised to plummet to depths not seen before.

There are two fallacies to this story propagated by NRN. Firstly the goal of VC is to generate returns in the excess of those which could be possible by the stock or bond markets, at the expense of taking a higher risk then normal. Any Silicon Valley VC will tell you that 99% of all startups fail but the 1% which succeed generate 1000% returns to compensate for all the failures. In the period 1999-2009 a VC study showed that more funds went bust then which made a profit for their investors.

Now given the risk profile for a VC, is NRN trying to become a silicon valley type VC or is he trying to become a "philanthropic venture capitalist". These three words are put together sound more ironic then "Sweet Tata Namak". The goals of each of these professions is different and do not intersect even on elliptical curve on a infinite plane.

Is NRN trying to downplay the share sales since he doesn't want investors to think that an insider is bailing out without attracting attention. As an investment decision NRN has made the right decision by slowly selling all his shares and hopefully diversifying his assets into index funds. As per the article he has now jus 0.4% shares of Infosys remaining so that speaks about the confidence he has in the company he has founded.

There was an article in Reuters the other day which spoke about how Accenture, HP and IBM consulting services have expanded in India to cut their overheads and now each employ more then three quarters of the workforce of Infosys or Wipro or TCS. Infosys trades at 20 times forward earnings versus 14 for IBM and similar disparities exist for Wipro and TCS. What more opportune time to sell the stock then when the Indian market has hit its cyclical bear market high!!

Good job NRN but sorry that you cannot pull the wool over our eyes. Full article here

BANGALORE: One of India's most successful entrepreneurs is turning into a venture capitalist (VC). Infosys Technologies' co-founder and chief mentor N R Narayana Murthy, on Thursday, sold shares worth Rs 180 crore to start a venture capital firm that would fund start-ups mainly in India. The idea is to encourage young entrepreneurs with brilliant ideas. The VC will invest in start-ups operating in the areas of basic healthcare, education and nutrition.

In a reversal of roles, in deciding to become a VC, Murthy is following in the footsteps of his daughter Akshata who was until recently a VC based out of Bay Area in Silicon Valley operating in the clean tech space. Until her marriage to Rishi Sunak in August, she was a senior associate at Siderian Ventures.

Murthy on Wednesday and Thursday sold a combined eight lakh shares of Infy to raise money to fund VC firm. The number of shares owned by him in the company now stands reduced to 23.8 lakh valued at Rs 526 crore at Thursday's closing price of Rs 2,211. The Murthy family's combined holding is around 5% with his wife Sudha owning the largest chunk. Murthy's individual holding in Infy which has been less than 1% for a while now stands reduced to 0.4%.

25 comments:

Anonymous said...

NRN is a good person and he maybe really trying to help innovation in India thru VC funding.

Or maybe he knows what is coming in the stock market with high unemployment and low orders from US/Europe and falling dollar, it is best to sell now. VC funding maybe a coverup for the stock prices not to fall.

Anonymous said...

This article does not make sense. I'm not arguing against prospects of Infosys and what NRN might think about that. But you are looking for a pointless controversy.

"philanthropic venture capitalist" - the term you should be using is angel investing and there is nothing wrong with it.

"he has now jus 0.4% shares of Infosys remaining" - this is not atypical of many companies which have been around for some time.

Anonymous said...

Bankers inflated the Real Estate Bubble..

Developers are only interested in the luxury end. We’ve just forgotten affordable housing’
Posted: Monday , Feb 11, 2008 at 0218 hrs
Walk The Talk - Interview with Deepak Parekh

You are agreeing to the restrictions being placed on your own growth, your own business.

Yes. Because you know the point is that every builder was buying land with bank money and land prices were going up, up, and up. Unfortunately, what has happened is that they are still going up because the Indian lenders have been substituted with foreign lenders. The huge increase in FDI that we’ve seen this year . . . this year we expect the FDI to touch $25 billion to $5-7 billion, and a fair amount of that is in real estate. So the builders have now resorted to borrowing abroad or taking equity or preference capital from overseas. And with that money they buy land.


So when do you see the party stopping? I’m using the language of business channels.


I hope the party stops. We need affordable housing, mass housing.


So are you saying the prices will come down or they should and will come down?


They should come down. I’ve been saying for the last 18 months that prices will come down. I’ve been proved totally wrong.
In fact, my board tells me that you should say that prices will go up and then they will come down. (Laughs)

So I’ve been proved totally wrong because the prices have not come done. If you take Bombay, for instance, the huge amount of development that is taking place in the next five years, I don’t see any reason for commercial prices to have to crash. Bombay commercial prices, like Connaught Place, Delhi, are among the costliest in the world.

And now the development is quite fast.


Development is fast. If you see the amount of construction in Parel area, it is 80 lakh sq ft — 80 lakh sq ft from large mills — small mills I’m not including. Now this is all commercial space. So 80 lakh sq ft of commercial space will be ready for occupation in the next two years. Who is going to take that much space? Bandra-Kurla, MMRDA is auctioning land there, again six to eight developers. A crore and a half square feet has been auctioned already for commercial use. So if you add that, add Dharavi, add Parel, in the commercial space, there will be so much surplus.

Anonymous said...

Anon above:
Are you a chutiya or what. What are you trying to prove here. That people go and buy and prices will not crash. How much are you invested in the RE?

Wait and watch, fall is coming. RE takes time to fall and the correction is going to be 60-70%. Teri to pant utrne wali hai.

Anonymous said...

@ Anonymous 11:11 AM

You are a retarded boneheaded scum bug.

The reference to the interview is to show how the Bankers and FII have helped inflating the real estate balloon.

Anonymous said...

To Anonymous 11:11 AM,

You are freaking mad...if you can not understand the article then it is not someone elses fault.

As long as 60/70 % reduction is concerned...I am sure you are a frustrated buyer who could not buy proeprty one time :-)....beta pant to teri utter gayi hai is liye itna pagla gaya hai !! hehe

Anonymous said...

Most of the big companies are setting up their own India center rather than outsource.People are ready to work for peanuts here in the US.What a timing:Nice move Murthy.

Anonymous said...

Forget Anon at 11:11 AM. Four ones.

Looks like the stock market has started its downfall. Maybe slowly slowly it may reach new lows by March 2010.

And the salaries of CEOs in the US are also being cut. It may also affect salaries being cut at all levels.

Anonymous said...

Comparing India & USA for event prediction in my view is suicidal. The ratio between home prices and local incomes/rents are quite reasonable. The reason the bubble has burst is that the RE itself has become the source of incomes/rents. In India the home/land price ratio to its rent has always been astronomical (never made any sense) and consumer borrowing has not hit to its max. RE bubble in India will burst too but probably not in the next 10 years.

@di said...

Vik,

Did you by any chance ever work for Infosys?

This rant says that you did!

Venkateswaran K Iyer said...

Vic,

Can you please delete anon@11.11 comment, for its foul language? Also, people posting, please desist from so much name calling (moron etc).

I dont think NRN was hiding his motives. I think he really was wanting to invest in new ideas.

There is nothing wrong with selling at a high - we all do it. He will get more money for his good work.

Please compare NRN with the Ambanis - they are the true examples of money grubbing cheating lying corrupt Indian businessmen.

Venkat ND

Anonymous said...

I think all the Indian s/w companies have senior management who run practices, Industry groups and so on..In some sense its like incubating a business and growing it.

NRN must have done this a zillion times during his career, with Infosys he has shown that he has a magic formula for creating "built to last" growth businesses.

He knows that if he invests in 100 businesses and is very careful( as he always is..) he will be able to at least grow 20-30 magnificent companies. Its logical that he does what he is doing and this will also benefit the economy/society...India needs entrepreneur's and India needs an entrepreneur guru like NRN to proliferate entrepreneur's who can then go out and create more entrepreneur's...

I was very pumped up to read this article. I hope I will be able to buy some stock in NRN's new venture :)

Also, BTW, how is this article relevant in a housing bubble forum?

shailesh said...

I have worked with all indian tech biggies like Infy, Wipro, TCS, Cognizant etc... They all tried to be innovative and build new products, and failed. The main issue is you cant build visionary products on being cheap.

Venkateswaran K Iyer said...

@anon 5.25

IT has driven India's growth and also of RE. The two are intertwined.

If we believe that promotors are exiting IT companies in droves, RE will tank the next day.

Very relevant

Vik said...

I did work for Infosys for a few months and quit as I got homesick more then anything else. That was a long time ago, just before the start of the IT boom. I have respect for NRN as a businessman, but he has yet to earn my respect as a philanthropist. If he wishes to be a vulture capitalist, I fail to see how he can be successful in it if he goes on a philanthropic mission. Like they say Dal mein kuch kala hain.

Cool Head said...

Wow, the MSM (main stream media) had made all of us believe in the "Saint NRN" myth!Look at all the comments posted here by otherwise intelligent folks.
NRN in no better or no worse than a labour contractor who gets his "kadiyas" from the villages to work on construction projects in the cities (rather than hiring directly in the cities,where the cost of labourers will be higher). Therefore he is just a wage arbitrage player, paying cyber-coolies in India a pittance that he would otherwise have had to pay had he directly hired US citizens.
The natives are supposed to be delirious with joy working for this guy at a pittance (as compared to US) and for the chance of visiting US once a while ("onshore").
NRN is hardly a saint. It is just a media hype created by Infosys by utilizing their huge money power.
And while some question the relevancy of NRN selling his own shares on a RE blog, remember that RE is inextricably linked with all the Indian IT companies. They get acres and acres of land at dirt cheap rates from the govt, on which some huge campuses are built. Nobody seems to question them why they require so much land? Why should the govt give them land at so cheap prices? How much land is held by them on which they have not built anything at all (which is vacant)? And of top of all this, the super profits earned by exploitation of local labor is also tax free. Wow! I admire the masochistic tendencies of my fellow countrymen.
IMHO all the other IT Cos are also Satyams,waiting to be discovered.
The other effect of IT on RE is that the moment the govt bestows cheap land to INFY or any other IT player, builders grab the surrounding land, build apts on it to sell to the cyber coolies at hugely inflated prices. The USP is just "close to INFY campus" and nothing else. I could go on and on but I think you get the drift....

Anonymous said...

NRN is just a businessman nothing else. Its just that TN and karnataka and in a way andhra societies try to personify their businessmen as demi-gods. But ppl have to understand that anyone who gives them jobs is only making them work harder for the pittance they pay. We have earned the money by working. Not because of some philanthrope businessman condescending to give you free money at the end of the month.

Have some respect people.For all i know he could be just another man thinking of s*agging the next available woman.

He is no more than a shrewd businessman with very little emotions and who knows when to exit.

Anonymous said...

@Venkat,pls. desist from speaking for other people. It makes us feel that people like Vic are incapable of defending themselves...For all your erudition, you have failed to elaborate on who these "hordes" are! I mean we are talking about NRN is there anyone else? Also, NRN is not quitting the IT sector is he?

@Vic, there is nothing to indicate that NRN is on a charity mission. I mean, knowing NRN, he will probably succeed in making billions out of this venture and make people slog to earn their respect and money..

@Guys, why does anybody need to justify themselves to you/media. I think only masochists and perverts have a compelling need to be seen as a "saint"..

If someone does their job in a focused fashion and that too is able to turn it into a towering success..he is a great man!much greater than you and me..If you guys claim Infy has exploited people etc..pls. remember if these companies had not put us in the outsourcing map, none of us would have been able to justify our humongous salaries in the so-called mature domains..like engineering, construction, manufacturing etc..

Venkateswaran K Iyer said...

@anon 9.04

Hey, I think you got me mixed up with someone else.

I never spoke for Vik, only asked him, as the moderator, to delete posts with foul language.

I never made any reference to Hordes.

I used "I think" in most posts to mean exactly what it means. I write with little erudition (?).

Re: posters complaining about working hard, it is time people give respect to the jobs that pay for their living. There is nothing wrong with the superior officer working their people hard, all the way to the top. No work no pay - there is no free lunch.

There is nothing wrong with people being paid less for their work in India than equivalents in US. Let US salaries come down to global levels. If they cant do better work than an Indian, let them be paid the same as an Indian. What makes the white guy so special?

Only those who can do something noone else can do can command a giant salary. The rest have to grin and bear it, being just "average". That is the reality of the MArket place - a much better leveller than Communism ever was.

Venkat ND

Anonymous said...

Capmark Financial files for bankruptcy protection

By BETSY VERECKEY, AP Business
Sun, 25th Oct 2009

CHICAGO – Capmark Financial Group, one of the nation's largest commercial real estate lenders, has filed for bankruptcy protection amid mounting bad debt.

Capmark has been hurt by rising losses on mortgage loans. In its Chapter 11 filing Sunday in Delaware bankruptcy court, the company listed total debt of $21 billion and assets of $20.1 billion. It seeks to reorganize under court protection, reducing its debt while continuing to operate its businesses.

Many U.S. banks have been hurt by rising losses on commercial real estate loans. With millions of jobs lost and office space remaining empty during the recession, developers have been forced to default on loans. Analysts predict that commercial real estate defaults will rise rapidly.

kumar said...

I agree with Cool Head.

NRN is always PR hungry. Our media obliges.

Anonymous said...

Indian Stock Markets are overvalued at this point of time and this is reflected in their PE ratios.

A CEO knows best about his business then all Udyan Mukherjee's of the world combined. The CEO (or an Insider) sells his shares when he feels that the growth in company doesn not justify its valuations and provides a right time to exit.

So you have HCL's vineet nayar selling shares worth 34 crores and now NRN selling 177 crores worth of shares. This is a clear indication that these stock prices are not going to rise in years to come.

If the likes of BB question this arguement they can go back to history. In 2006 Nandan Nilekani sold Infosys stocks worth 400 crores @ 2250 / share. The stock then kept on plunging even when the sensex was shooting and it took three years for Infy stock price to cross 2300 mark. Nandan by this time I am sure would have invested his 400 crores well and would be worth 600 crores by now.

I sold my entire HCL stock the very next day their ceo sold his shares. I got a price of 335 Rs / share, and I am sure it will take years for this price to come up again.

Bubbles are building. In last month Promoters have sold their stake in DLF, Bartronics, Unitech, HDIL, Infosys, hcl, tech mahindra, wipro. hope this advice helps you and God gives you wisdom to choose right.

RKA

Anonymous said...

Hey RKA,

What is the source of your info on the insider trading for all these companies?

Anonymous said...

The Annual Reports

RKA

rajni sharma said...
This comment has been removed by the author.