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Indian Investments Abroad

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Indian Investment Abroad - Overseas Direct Investment by Indian Companies

August, 2014

Introduction

India is progressively becoming a source of foreign investment for rest of the world. A number of private players, along with state-owned entities, are increasingly expanding their footprints in foreign lands through direct investments. In the next 15 years, over 2,200 Indian firms are anticipated to invest in markets abroad.

Indian firms invest overseas majorly through mergers and acquisition (M&A) transactions. With more M&A, Indian companies would be getting direct access to new and more extensive markets, new products and technologies, which would enable them to increase their existing customer base and achieve a global reach.

The Reserve Bank of India (RBI) has recently liberalised/ rationalised guidelines for investments abroad by Indian companies. It has raised the annual overseas investment ceiling for Indians to US$ 125,000 from US$ 75,000 to set up joint ventures (JV)/ wholly owned subsidiaries. The Government of India's supportive policy regime, coupled with India Inc's experimental orientation is certain to demonstrate an upward trend in outward foreign direct investment (FDI) in the coming years.

Market size

Overseas direct investments by Indian companies stood at US$ 1.59 billion in May 2014. The investments in the form of equities, loans and guarantees were US$ 155.69 million, US$ 182.59 million and US$ 1.26 billion, respectively, during the month, according to data released by the RBI.

The total value of India's outbound M&A deals (Indian companies acquiring businesses outside India) in April 2014 stood at US$ 702 million (11 deals) as compared to US$ 490 million (10 deals) during the corresponding period last year. The deal value in year to date April 2014 was US$ 1.19 billion (35 deals), according to data released by accounting and consulting firm, Grant Thornton.

During the period April 2013-January, 2014, the Netherlands and Singapore attracted most of the outward FDI from India, with a share of 28.8 per cent and 15.2 per cent respectively in total investments, according to a study by CARE Ratings. Total FDI made by India during the period stood at US$ 29.29 billion.

Investments

Glenmark Pharmaceuticals has opened its new monoclonal antibody manufacturing facility in La Chaux-de-Fonds, Switzerland. The facility supplements Glenmark's existing in-house discovery and development capabilities and will supply material for clinical development.

Zomato has acquired New Zealand's MenuMania for an estimated Rs 5 crore (US$ 826,898.03) in an all-cash deal, which has made it the largest player in its space in the island country with over 15,000 restaurants.

Cipla announced its fifth global acquisition deal, within a span of a year, by picking up a 51 per cent stake for US$ 21 million in a pharmaceuticals manufacturing and distribution business in Yemen.

Motherson Sumi Systems Ltd has acquired Ohio-based Stoneridge Inc's wiring harness business for US$ 65.7 million. The acquisition is expected to close in the third quarter of 2014, as per the company.

Quick Heal Technologies has opened two new branches in Africa and the Middle East which are in addition to its existing set up in Japan. The new offices are located in Kenya and Dubai respectively and will service the company's direct partners and customers in these regions.

Everstone Capital has picked up 51 per cent stake in Domino's Pizza's Indonesian local franchise, PT Dom Pizza, for US$ 20 million.

Tata Group plans to set up an international nodal office in Dubai to help group companies grow faster in the MENA (Middle East and North Africa) region. This in accordance with the Tata Group's plan to increase its annual turnover from about US$ 100 billion to US$ 500 billion by 2022.

Government Initiatives

The RBI has relaxed norms for overseas investment by Indian corporates by raising their borrowing limit. The financial commitment to be undertaken by an Indian party will be limited within 400 per cent compared to the earlier level of 100 per cent of the company's net worth (as per the last audited balance sheet). "It has, however, been decided that any financial commitment exceeding US$ 1 billion (or its equivalent) in a financial year would require prior approval of the Reserve Bank even when the total financial commitment of the Indian Party is within the eligible limit under the automatic route...," stated the RBI.

The RBI has allowed limited liability partnership (LLP) firms to carry out financial commitment to/on behalf of JV or wholly owned subsidiaries of the Indian companies abroad. It has also allowed Mr Azim Premji, Founder, Wipro Ltd, to invest directly in technology companies in the United States and China.

The Ministry of External Affairs has initiated a move to establish a direct sea and air link between India and the Latin American region, as Indian corporates plan significant investments in the oil, mining, IT and pharmaceutical sectors in the region.

The Government of India is making all efforts to integrate the country's economy with the rest of the world in the every possible way. To help Indian firms raise capital abroad, the government will allow unlisted Indian companies to list on overseas markets without having to be publicly traded on domestic exchanges.

Road Ahead

In a bid to increase business and strengthen their global presence, more overseas investments by leading Indian firms are on the anvil. Indian industry is expected to increase revenue from Africa. Information technology (IT) services, agriculture, infrastructure, pharmaceuticals and consumer goods are the key to India boosting Africa revenues to US$ 160 billion by 2025, as per Mr Rajat Gupta, Director, McKinsey & Co.

Aiming to double Indian business activity in Nottingham, the European city is looking at focused business initiatives with Punjab, Haryana and Chandigarh and attracting more investment from Indian investors. Nottingham has a gross domestic product (GDP) of £12 billion (US$ 19.89 billion) of which Indian companies contribute about £1 billion (US$ 1.65 billion). "We are looking at doubling the Indian business activity in our city by the next five years," according to Mr David Bishop, Corporate Director, Development, Nottingham City Council.

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

References: Media Reports, Press Releases, Reserve Bank of India website