New Delhi: Creating perhaps a record of sorts, the country’s total outbound foreign direct investment (FDI) in 2007 may exceed the target of $30 billion for inbound FDI in fiscal 2007-08, a study said.
“For Indian corporate sector, 2006 was a watershed year in terms of mergers and acquisitions as Indian companies went shopping across the globe. Total outbound deals, which were valued at $4.3 billion in 2005, crossed the $15-billion mark in the following year and could well breach the $35-billion level this year,” the report by Ficci and Ernst and Young said.
The report on ‘Direct investments in the Unites States of America by Indian enterprises’ also revealed that Indian companies invested over $2 billion in 2006-07 in 48 deals with the US counterparts.
“IT and ITeS have emerged as the front-runners in outbound investment from India to the US, accounting for 48% of the total 48 deals worth over $2 billion in 2006-07,” the report said.
Top three of the 48 deals are Tata Tea’s $677 million acquisition of Energy Brands Inc, OVL’s Omimex de Columbia takeover for $425 million and Tata Coffee’s $220 million deal with Eight O’Clock Coffee Company. However, the Tatas later sold their 30% stake in Energy Brands Inc to Coca-Cola for $1.2 billion.
Besides the bigger deals, small and medium enterprises also made acquisitions in areas like IT, ITeS, pharma and healthcare, irrigation, electricals, automotives, textiles, telecom, paint, paper and gems and jewellery.
The investments were primarily driven by increased profitability, cost advantage, increased willingness of corporate India to take on risk, a liberal regulatory stance of the Indian government and exposure of domestic companies and their management to the US companies, the Ficci-Ernst and Young report said.
Management practices and maturing of the Indian corporate sector in terms of fundamentals and competitiveness were the other reasons fuelling the growth in outbound deals, it said.
“The US has emerged as a dynamic market for Indian companies, which are likely to invest $10 billion in that country by 2010,” Ficci secretary general Amit Mitra said.
Apart form the mega deals, which catch the limelight, there are lots of small and mid-sized deals in $20-60 million range, which are driving the growth.
“Greater activity would be witnessed in this band in the next few years,” Mitra said.
For the first time ever the total value of outbound deals exceeded that of inbound deals in the first half of 2006.
“Indian companies will continue to invest in the US and Europe and besides acquiring only brands, would now be shifting focus to manufacturing, technology and R&D,” Ernst & Young partner Gaurav Taneja said while releasing the report.