India’s economic fundamentals are gaining strength driven by robust economic fundamentals and optimistic growth outlook. On macro front, India is among few emerging economies wherein IMF is to a GDP growth of 7.4% vs., 6.6% for China for 2016. The report states in opening paragraph ‘Politically, it is more stable than in previous cycles, with the BJP led government initiating a number of economic reforms that are instilling economic confidence and raising India’s attractiveness as a destination for FDI’.
With favorable demographics, encouraging regulatory regime, impetus on FDI and stable government; India is turning into an attractive destination for inbound Merger & Acquisition (M&A). Since, 2013, there has been sharp uptrend in M&A activity with 2015; making India a leading FDI destination.
During 2006 to 2015, India’s GDP double from nearly USD 1 tn to USD 2 tn. We expect this pace to continue going forward.
Following chart is reproduced from the report, where we can see sharp uptrend since NDA has come to power.
Key insights from the report:
- In 2015, the inbound M&A totaled 227 deals worth USD 19.6 bn; while in H1-2016, ~82 deals worth ~USD 9.0 bn were announced, which puts India on top of the leaderboard.
- In terms of inbound M&A, the US was the top investor country in India in H1-2016 with 23 deals worth USD 2.5 bn.
- In 2015, in terms of deal volume; India attracted 6% of all US outbound M&A; while investment in China was only 2% of all US outbound M&A. In value terms, in 2015, US firms invested USD 8.9 bn in deals in India, marginally short of China’s total deal value of USD 11.3 bn. The increasing number of deals from US to India vis-à-vis China shows greater confidence in multiple sectors. Multiple smaller deals also shows vibrancy across multiple sectors. With China’s GDP nearly 5 times of India; India’s inward deals matching that of China shows huge investor confidence on India. Moreover, 2015 was a bonus year; and testament of NDA’s stable policy environment boosting confidence.
- Our Country has huge potential to overtake China. In fact, investors are expecting huge re-balancing in the economy with India moving to more Export Oriented Manufacturing vs., the current services oriented economic; on the back of sustained push on the Make In India campaign. Reduction on red tape and bureaucratic interference shall be key to further boost investor confidence.
- In sectoral terms, Technology & Media has seen lot of up pick due to increasing digitization, evident from the USD 16 bn worth of goods purchased online in 2015, vs., USD 6.3 bn in 2014. In line with this increase, Amazon has already announced investment of USD 3 bn addition to the existing investment of USD 2 bn.
The following table shows sector flows in FDI from 2011 to YTD 2016 (YTD = Year To Date)
6. Even in the stock market the flows have improved substantially since Mar 2016; with FPI flows (earlier called FII flows) of USD 4.0 Bn in one month of Mar 2016. In fact, from Mar 2016, the total FPI flows have been USD 8.5 bn. This is only Cash Market flow, excluding derivative flows. As on 31 Jul 2016, the FPIs have an investment of ~USD 275 bn in India. This remains a testament of Investor confidence in India. The chart show flows since Sept 2015; and sector-wise FPI allocation.
Government’s focus in pushing Make In India, enhancing infrastructure investment, aided with stable Policy reforms; will push countries growth forward. Lets hope we will be able to catch China in a decade. Moreover, the Government deserves huge applause for maintaining growth despite a global slowdown. This is tough take to achieve.
Source:
http://mergermarketgroup.com/wp-content/uploads/2016/09/Kroll_Newsletter_Issue_12.pdf