India is fast becoming a major source of foreign investment for the rest of the world. A number of private and state-owned players are progressively expanding their footprints abroad through direct investments. In the next 15 years, over 2,200 Indian firms are expected to invest in markets overseas.
Indian firms invest in foreign shores primarily through mergers and acquisition (M&A) transactions. With more and more M&A, companies will get direct access to newer and more extensive markets and better technologies, which would enable them to increase their customer base and achieve a global reach.
The Reserve Bank of India (RBI) recently liberalised/rationalised guidelines for foreign investments abroad by Indian companies. It raised the annual overseas investment ceiling for Indians to US$ 125,000 from US$ 75,000 to establish joint ventures (JV) and wholly owned subsidiaries. The government's supportive policy regime complemented by India Inc's experimenting outlook could lead to an upward trend in outward foreign direct investment (FDI) in future.
Indian companies announced M&A transactions worth US$ 8.4 billion in July 2014, from 110 deals, an increase of 36 per cent in transaction value and 23 per cent in volume over July 2013, as per global consulting firm Grant Thornton.
Direct investments abroad 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.
Foreign bourses such as the London Stock Exchange, Tokyo Stock Exchange and SIX Swiss Exchange have been in touch with Indian firms, trying to convince the latter of the benefits of listing overseas.
Drug maker Cipla Ltd has entered into a collaboration with Teva Pharmaceutical Industries Ltd to explore the South African market."This collaboration is highly complementary and aligns strongly with our philosophy of providing South Africans with access to a broader range of affordable medicines," as per Mr Paul Miller, CEO, Cipla Medpro.
Mahindra Two Wheelers has made a binding offer to purchase 51 per cent stake in Peugeot Motorcycles (PMTC) from French auto major PSA Group, for € 28 million (US$ 34.95 million). About € 15 million (US$ 19.01 million) will be infused in PMTC to support future products, as per Mr Pawan Goenka, Executive Director, Mahindra & Mahindra.
ABB India Ltd, a subsidiary of engineering group ABB, has bagged a Rs 172 crore (US$ 27.81 million) order from Power Grid Company of Bangladesh Ltd for supply of four 132/33kV turnkey substations. ABB will also assist Power Grid Company expand its other six substations.
Bharat Petroleum Corp Ltd (BPCL) plans to invest Rs 13,000 crore (US$ 2.1 billion) in energy production and exploration in Brazil and Mozambique over the next four years, which is the company's biggest investment in the upstream sector. This investment is double the amount BPCL has spent in exploration and production activity over the last 10 years.
Hero Cycles has bought Mitteldeutsche Fahrradwerke AG (MIFA), Germany's largest manufacturer of bicycles, marking Hero's first ever overseas purchase as it seeks to become a leader in the global market.
Aiming to double Indian business activity, the city of Nottingham in England is looking at focused business initiatives with the states of Punjab and Haryana. Nottingham has a gross domestic product (GDP) of £12 billion (US$ 19.33 billion), with Indian companies contributing about £1 billion (US$ 1.61 billion). "We are looking at doubling the Indian business activity in our city by the next five years," as per Mr David Bishop, Corporate Director, Development, Nottingham City Council.
Zomato has acquired New Zealand's MenuMania for a reported Rs 5 crore (US$ 808,556.63) in an all-cash deal, making it the largest player in its space in the island country with over 15,000 restaurants.
Motherson Sumi Systems Ltd has bought Ohio-based Stoneridge Inc's wiring harness business for US$ 65.7 million.
Tata Group plans to establish an international nodal office in Dubai to help group companies grow faster in the Middle East and North Africa regions. This is in accordance with the Tata Group's objective to increase its annual turnover from US$ 100 billion to US$ 500 billion by 2022.
The Union Cabinet chaired by the Prime Minister, Mr Narendra Modi, has given its approval for the framework inter-governmental Memorandum of Understanding (MoU) which will be finalised by the Governments of India and Iran.
The RBI has relaxed norms for foreign investment by Indian corporates by raising the borrowing limit. The financial commitment to be undertaken by an Indian party will be limited to within 400 per cent compared to the earlier 100 per cent of the company's net worth.
The RBI has also allowed limited liability partnership (LLP) firms to undertake financial commitment to/on behalf of JV or wholly owned subsidiaries of Indian companies abroad.
The Indian government is making efforts to integrate the country's economy with the rest of the world. To help the country's firms raise capital abroad, the government will facilitate unlisted Indian companies to list on foreign markets without having to be publicly traded on domestic exchanges.
To increase business and strengthen their presence globally, more overseas investments by leading Indian firms look likely. For instance, the Indian industry is projected to increase revenue from Africa. Information technology (IT) services, infrastructure, agriculture, pharmaceuticals and consumer goods are vital to India boosting Africa revenues to US$ 160 billion by 2025, as per Mr Rajat Gupta, Director, McKinsey & Co.
In another development, the Ministry of External Affairs has initiated a move to set up a direct sea and air link between India and the Latin American region, as Indian corporate players plan significant investments in the mining, oil, IT and pharmaceutical sectors in the region.
Exchange Rate Used: INR 1 = US$ 0.016 as on November 27, 2014
References:Media Reports, Press Releases, Reserve Bank of India website