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Photo: Bloomberg
Photo: Bloomberg

Indian  firms invested in  farm, financials  abroad amid covid

Outbound investments by Indian firms have been volatile, characterized by short periods of large investments

Indian firms slashed investments offshore sharply in the first eight months of FY21 because of the pandemic. But investments in two sectors surged to a three-year high even as others slowed.

Farms, mines and financials dominated the offshore direct investment of Indian companies this year. Data from the Reserve Bank of India (RBI) showed that in April-November, the share of outbound investments into agriculture and mining was 15.6%, up from 3% in the year-ago. The share of financials surged to 32% from 12%. Investments in agriculture and mining totalled $1.91 billion, while financials, insurance and business services added up to $3.4 billion.

Much of the offshore investments of Indian firms were infusions into subsidiaries, but some were for fresh investments and acquisitions.

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Overall, investments have dropped by 42% year-on-year in April-November, a fallout of the pandemic. That said, the momentum of investment has maintained despite the uncertainties due to the pandemic.

“The performance so far this year has been impressive given the pandemic as it does reflect that India Inc. has continued with its global investment plans," said a 18 December Care Ratings report.

What’s more, the share of loans as a route of investment increased, while that of guarantees fell. Guarantees do not involve immediate outflow and only occur if there is a default by the subsidiary. The share of guarantees in overall outbound investments was 64% in April-November period of FY20. Most firms have periodically guaranteed instruments of their offshore subsidiaries. But this share fell to 48% in the first eight months of FY21. Sectors that saw a sharp drop in investments were construction (79%) and transport, storage and communications with 72% fall. Interestingly, investments in trade, restaurants and hotels fell by 8% despite being hit most by curbs.

The US continued to dominate as a big destination of investment, followed by Singapore, Netherlands, British Virgin Islands and Mauritius.

Outbound investments by Indian firms have been volatile in the past years, characterized typically by short periods of large chunky investments. But given that the volume of such investments has not exceeded $20 billion, a disruption to the balance of payments has not occurred.

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