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India’s space missions plan drawn up
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  Indian Investments Abroad: An Overview
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  Holiday in Kashmir Valley
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 06. TREND

INDIAN INVESTMENTS ABROAD : AN OVERVIEW

Indian companies -- big or small -- are reaching overseas destinations to tap new markets and acquire technologies. While some of the investment has gone into greenfield projects, a major portion of Indian overseas investment went into acquiring companies abroad. Acquisitions bring with them major benefits -- existing customers, a foothold in the destination market and also niche technologies they require.

In fact, 2007 was a year of mergers and acquisitions for corporate India. The value of foreign acquisitions by Indian companies exceeded that of inbound acquisitions as well as overall foreign direct investment (FDI) coming into the country during 2007. India Inc spent US$ 32.73 billion for its overseas M&A deals, against US$ 15 billion bill footed by foreign firms for acquisitions in India and an estimated US$ 16 billion of FDI.

Mergers and Acquisitions
The total value of deals (both PE and M&A) announced in this calendar year was US$ 68.32 billion, up 143 per cent against 2006's US$ 28.16 billion. The average Indian M&A deal size was close to US$ 77 million, while the average Indian PE deal size was around US$ 44 million in 2007, according to Grant Thornton's annual deal tracker. The total number of M&As announced in 2007 stood at 661, with a total announced value of US$ 51.17 billion, against 480 deals in 2006 with a total announced value of US$ 20.30 billion. The Tata-Corus, Vodafone-Hutch and Hindalco-Novelis deals accounted for 60% of total cross-border M&As during the year. The total number of PE deals announced in 2007 stood at 386, with a total announced value of US$ 17.14 billion, against 302 deals with an announced value of US$ 7.86 billion in the previous year.

There were 313 domestic deals (both acquirer and target being Indian) with an announced value of US$ 2.83 billion and 348 cross-border deals with an announced value of US$ 48.34 billion.

As many as 240 of the cross-border deals were outbound (Indian companies acquiring businesses outside India) with a value of US$ 32.73 billion and 108 were inbound deals (international companies or their subsidiaries acquiring Indian businesses) with an announced value of close to $15.61 billion.

Due to the rapid growth in Indian companies' M & A activity, India has emerged as the most acquisitive nation in emerging nations, according to global consultancy KPMG's Emerging Markets International Acquisitions Tracker.

Acquisitions Abroad

Indian companies are acquiring international firms in an effort to acquire new markets and maintain its growth momentum, buy cutting-edge technology, develop new product mixes, improve operating margins and efficiencies, and take worldwide competition head-on.

  • Tata Steel has acquired UK- based Corus for about US$ 8 billion.
  • Suzlon Energy Ltd has acquired German firm Repower Systems AG for US$ 1.7 billion.
  • Vijay Mallya-led United Spirits has bought Scotch whisky distiller Whyte & Mackay for US$ 1.11 billion
  • Tata Power has acquired significant stake in two Indonesian firms, PT Kaltim Prima Coal and PT Arutmin Indonesia, for US$ 1.1 billion.
  • Essar Group has acquired Canadian firm Algoma Steel for about US$ 1.55 billion.
  • Hindalco has acquired Novelis for US$ 6 billion.
  • JSW Steels acquired three US firms, Jindal United Steel Corp, Saw Pipes USA and Jindal Enterprises LLC, for US$ 940 million.
    While pharmaceuticals, IT and energy were the prominent sectors attracting investments by Corporate India, significant Indian investment has also flown into metals, industrial goods, automotive components, beverages, cosmetics, mobile communications, software and financial services.

Favourable Policy Changes
In a bid to give further impetus to overseas investments, the Reserve Bank of India has further

liberalised overseas investment norms for both direct and portfolio investment. It has:

  • hiked the overseas investment limit from 300 per cent of the net worth to 400 per cent of the net worth;
  • hiked the limit on overseas portfolio investment by Indian companies from 35 per cent of their net worth to 50 per cent of their net worth;
  • allowed Indian residents to remit up to US$ 2,00,000 per financial year, from US$ 1,00,000 previously, for any current or capital account transaction or a combination of both.
  • allowed mutual funds to make an aggregate investment to the tune of US$ 5 billion in overseas avenues, from an earlier cap of
    US$ 4 billion.

Looking Ahead

With the acceleration of overseas Indian investment, it is estimated that FDI outflows in 2007-08 are likely to overtake FDI inflows into India. Recognising the tide of overseas Indian investment, UNCTAD in its annual World Investment Report (WIR) notes India's emergence as a major player in terms of FDI outflows. Similarly, according to a joint finding by two European investment bodies from France and Germany (Invest in France and Invest in Germany), the FDI outflow from India to the European Union (EU) can cross the US$ 25-billion mark this year from an estimated US$ 16 billion in 2006. As India Inc increases its global foothold through both mergers and acquisitions and greenfield investment projects, India could emerge as the next generation of global brands.



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