Due to the coronavirus-led economic disruption, India Inc is expected to focus more on the home market and avoid venturing overseas for merger and acquisition (M&A) opportunities.
Covid-19 outbreak has forced risky bets off the table in the first half of the year. To put it in perspective, so far this year, Indian companies have signed cheques worth just $428.6 million to acquire companies outside of India, representing just 0.5% of the global outbound M&A market, data from financial markets tracker Refinitiv shows.
For the calendar year 2019, Indian companies acquired overseas companies worth $2.8 billion, representing a market share of 3.4%. data shows.
With most professional forecasters painting a bleak picture for economic growth in the current fiscal, the second half of the year too is not expected to see much action.
"Corporate India is more focused on India than going overseas. In this environment, I see very little outbound M&A," said Pramod Kumar, Barclays India managing director and head of banking.
Kumar added that most of the large Indian corporates that have the ability to execute outbound M&A are, today, more focused on protecting their cash flows and securing their core business than looking at opportunistic deals overseas.
"This is not an environment where companies will be enterprising and take risks like these. Unless people see some strategic gaps that need to be filled and they see an opportunity like that," said Kumar.
India Inc's appetite for overseas acquisitions has been on the slow track for a while.
For the five year period between 2010 and 2014, Indian companies made overseas acquisitions worth $53.89 billion, while in the period between 2015 and 2019, outbound acquisitions amounted to $29.73 billion, with 2018 as a stand out year that saw outbound deals worth $12.9 billion, Refinitiv data shows.
"I don't think India Inc is looking at outbound M&A in a big way. The past experiences have not been very encouraging, companies have faced a lot of challenges," said Utpal Oza, managing director and head (investment banking) at Nomura India.
Oza added that access to cheap capital and the overall financing environment for undertaking large acquisitions is also muted currently and given the protectionist tendencies being seen across countries, outbound M&A does not seem to be a focus area for Indian corporates.
Certain sectors, however, could be an exception to this overall mood of aversion for outbound acquisitions.
"Tech companies are definitely an outlier. This will be a good opportunity for them. The H1B visa issue could motivate tech companies to look for front end presence in overseas markets like the US & Europe. Japan is also a favoured destination. Pharma companies may also selectively consider opportunities especially in injectables and specialty," he said.
Oza added that while outbound activity will be low, there is an increasing inbound interest, as balance sheet stress, covid-19 lockdown, valuation correction and supply chain diversification will lead to increasing M&A opportunities.
"Globally, companies are keen to diversify out of China. Some of these would now look to come to India and acquire scaleable assets to establish presence," he said.