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Domestic Investments

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Domestic Investment in India

August, 2014

Introduction

India has tremendous potential for domestic investment. The country is now becoming home to a new breed of start-up companies focused on high growth areas such as mobility, e-commerce and other vertical specific solutions - creating new markets and driving innovation. Indian Inc witnessed total domestic mergers and acquisitions (M&A) worth US$ 2.7 billion in the first quarter of 2014, according to a Grant Thornton report.

From a growth standpoint, the country looks stronger than many other emerging markets. With the new Indian government showing signs of economic reforms, the country's economy could achieve a growth rate of 5.5 per cent in 2014 as compared to 4.7 per cent last year, according to the World Bank. Further, liberalisation of the economy and a growing need for investment, particularly in infrastructure and industry, have resulted in a more investor-friendly climate in India.

Market size

The total domestic M&A activities of Indian companies in April 2014 were valued at US$ 4.1 billion (21 deals) as compared to US$ 622 million (13 deals) during the corresponding period of 2013, according to a recent report by Grant Thornton.

The Indian domestic M&A market reached over US$ 5 billion by way of 72 deals year to date (YTD) April 2014. The high value is predominantly due to the US$ 3.2 billion deal between Sun Pharma and Ranbaxy and the US$ 1.4 billion Vodafone stake consolidation deal.

The HSBC's Manufacturing Purchasing Managers' Index (PMI), a measure of factory production, for India stood at 51.3 points in April 2014, amid moderate expansion of incoming new business orders.

Investments

Motilal Oswal Private Equity (PE) has invested Rs 75 crore (US$ 12.39 million) for a significant minority stake in Glass Wall Systems (India) that manufactures, supplies and installs architectural glass facade system.

SRL Ltd plans to invest about Rs 450 crore (US$ 74.39 million) and open 45 diagnostics laboratories across India in 2014-15. The largest of these laboratories will be opened in Gurgaon with an investment of about Rs 350 crore (US$ 57.86 million).

Coal India has planned a Rs 10,000 crore (US$ 1.65 billion) joint venture (JV) along with GAIL India, Rashtriya Chemicals and Fertilizers (RCF) and Fertilizer Corporation of India Ltd (FCIL) to set up a urea and ammonium nitrate chemicals complex that will run on gasified coal.

PE firm SAIF Partners plans to make up to eight investments in FY 15 across different sectors in an effort to significantly ramp up its investment pace in India and plan for more exits through the public market.

Tata introduced its non-electric water purifiers, Tata Swach, into the Ahmedabad market in two variants, to complete the spectrum of offerings addressing total water purification for households and cater to its consumers.

JSW Steel plans to acquire Welspun Maxsteel for about Rs 1,100 crore (US$ 181.82 million), in a move aimed at strengthening its presence in the northern and western markets.

Reliance Industries Ltd (RIL) has lined up capital expenditure of Rs 1.8 trillion (US$ 29.75 billion) for the next three years for its petrochemicals, telecom and retail ventures.

Government Initiatives

The Government of India will develop new manufacturing clusters for electronic goods in eight cities as part of its agenda to boost manufacturing, according to Mr Ravi Shankar Prasad, Union Minister for Communications and Information Technology, Government of India.

The Indian government has extended the validity period of an industrial licence to three years from two years, with a provision for further extension by two years. It also plans to set up a first-of-its-kind co-investment fund for small and medium enterprises (SMEs) with an initial sum of Rs 5,000 crore (US$ 826.41 million).

The Department of Electronics and IT Industry has given an in-principle approval to Kinfra's proposal to develop an electronics manufacturing hub in Kochi. The project with an outlay of Rs 250 crore (US$ 41.32 million) is intended to create an industrial park with all modern facilities exclusively for the electronics industry.

The Government of India plans to establish a 1,200 km direct subsea optic fibre cable link between the Indian mainland and Andaman & Nicobar Islands, to improve telecom connectivity in the strategically located archipelago.

The Government of Uttar Pradesh (UP) signed memorandums of understanding (MoU) with 23 companies worth Rs 54,606 crore (US$ 9.02 billion), including a Rs 220 crore (US$ 36.36 million) project for a personal rapid transit (pod taxi) system in Noida.

Road Ahead

The year 2014 looks like the year of the big deal. According to experts, the overall M&A deal values in India could exceed US$ 30 billion this year. The economy is on a bend, with the gross domestic product (GDP) growth likely to expand six per cent in FY 15 and by eight-nine per cent over the next three years, highlighted Mr Anand Sharma, Union Minister for Commerce and Industry, Government of India.

Indian enterprises are enhancing their IT security operations capabilities across departments. The Indian market for security infrastructure and services is expected to grow from US$ 989 million this year to US$ 1.4 billion by 2017, as per Gartner.

The country's airports sector is also expected to receive investments worth US$ 12.1 billion during the 12th Five-Year Plan, of which US$ 9.3 billion is expected to come from the private sector for construction of new and low-cost airports and expansion and modernisation of existing ones, as per Mr Ajit Singh, Union Minister for Civil Aviation, Government of India.

Exchange Rate Used: INR 1 = 0.0165 as on August 26, 2014

References: Ministry of Finance, Press Information Bureau (PIB), Media Reports, Department of Industrial Policy and Promotion (DIPP)