Introduction
A rise in domestic investments has been one of the most significant contributors to the growth story of India. Domestic investments in India are divided into two parts - public investments and private investments. Private investments are further divided into two parts, which are household investments and corporate investments. Private domestic investments depend on a slew of factors - macroeconomic stability, high household savings, productivity, access to credit, resolution of non-performing assets, clearing up of balance sheets, etc.
Domestic investments and foreign investments in India work hand-in-hand to help the growth of the country. Growth in emerging economies like India results mainly from innovations that allow domestic sectors to catch up with cutting-edge technology. The process of catching up with the leader in any sector requires the cooperation of a foreign investor who is familiar with the leading technology, and a domestic entrepreneur/investor who is familiar with the local conditions.
The Indian private investing space has also been showcasing signs of maturity over the past few years. The market has revealed that new investments accounted for about 50% of VC transactions. The VC-to-PE pipeline has also become robust and consistent.
The concept of 'Make in India' - Atmanirbhar Bharat, various PLI schemes, and financial incentives provided by the government are a few examples of investor-friendly programmes that domestic companies are utilising to increase their production base and create new capacities, which leads to increasing domestic investments. There are multiple investors driving domestic investments in the country:
- Government/Public Sector Enterprises
- Private Sector Enterprises
- Banks/Financial Institutions/Domestic Institutional Investors
- Retail Investors
Market Activity
India's economy showed great signs of recovery in FY22 after the COVID-19 pandemic. Real GDP or Gross Domestic Product (GDP) at constant (2011-12) prices in FY22 stood at Rs. 147.36 lakh crore (US$ 1.85 trillion), an 8.7% growth YoY, while nominal GDP stood at Rs. 236.65 lakh crore (US$ 2.97 trillion), a 19.5% growth YoY. These figures make India the fastest-growing major economy in the world, and this economic growth has translated to the domestic investment market in India. Retail investors, mutual funds and PE/VC firms have all stepped up their domestic investments in the Indian market.
The share of retail investors in companies listed on the National Stock Exchange (NSE) reached an all-time high of 7.42% as of March 31, 2022, up from 7.33% as of December 31, 2021. In the same time period, in rupee terms, retail holding in companies listed on NSE reached an all-time high of Rs. 19.16 lakh crore (US$ 240.17 billion), up from Rs. 19.05 lakh crore (US$ 238.8 billion) on December 31, 2021.
Share of domestic mutual funds in companies listed on the NSE increased for the third quarter running and reached 7.75% as of March 31, 2022, up from 7.46% as of December 31, 2021.
India's Private Equity (PE)/Venture Capital (VC) investment environment is also scaling new heights, with increases in deal size, deal activity and fundraising, as well as improvements in term sheets and benchmarking practices. In 2021, total PE/VC investment activity in India stood at US$ 77.1 billion, a 62% YoY increase.
Investments/developments
With the improving economic scenario, there have been quite a few investments in various sectors along with M&As in India. Some of them are as follows:
- Venture capital investments in the country reached US$ 28 billion in 2021, 4 times the value recorded in 2020.
- Foreign portfolio investment (FPI) made a net outflow of Rs. 150,458 crores (US$ 19.45 billion) in India for the year 2022 (upto 11 May 2022).
- In the first four months of 2022, (upto April 28), M&A deals, and deals in the making, have already crossed US$ 105 billion, compared to US$ 44.2 billion in the first four months of 2021.
- In May 2022, Reliance Brands Limited, a subsidiary of Reliance Retail Ventures Ltd, signed a franchise agreement to sell Italian luxury lifestyle brand Tod’s products in India.
- In May 2022, The Toyota Group of Companies (constituting Toyota Kirloskar Motor and Toyota Kirloskar Auto Parts) has signed an MoU with the Government of Karnataka to invest Rs. 4,800 crore (US$ 620.23 million) to build electric powertrain components.
- In April 2022, HDFC and HDFC Bank announced an all stock amalgamation of the former into the latter to create a banking behemoth.
- The Indian real estate sector attracted US$ 62.8 billion worth of institutional investments from 2006 to March 2022.
- Infrastructure investment trusts (InvITs) have Asset under Management (AUM) worth Rs. 140,000 crore (US$ 18.10 billion) in India, as of February 2022.
- Coal India will be investing > Rs. 1,220 billion (US$ 16.7 billion) in 500 projects by 2023-24 to improve efficiency in coal transport.
- Mutual funds asset base stood at Rs. 37.57 trillion (US$ 485.62 billion) in March 2022.
- In FY 2022-23, TVS Motor Company has lined up capital expenditure of Rs. 700 crore (US$ 90.36 million) to accelerate new products, including EVs, as well as increase production.
- In March 2022, Bain Capital invested US$ 483 million in IIFL Wealth Management for a 25% stake in the company.
- In March 2022, Sumeru Ventures, Vitruvian Partners and BlackRock collectively invested US$ 400 million in BYJU’s for a 2% stake in the company.
- Borosil Renewables will invest Rs 1,500 crore (US$ 195 million) over the next 2 years to expand its capacity by nearly 2.5 times and supply 15 GW of solar modules by FY25.
- Reliance Brands Limited will acquire a 51% stake in India’s foremost couturiers Abu Jani Sandeep Khosla (AJSK).
- Adani Airport Holdings Ltd (AAHL), a wholly owned subsidiary of Adani Enterprises Ltd, has announced a successful closure of funding of US$ 250 million senior secured three-year ECB facility from consortium of Standard Chartered Bank (SCB) and Barclays Bank PLC.
- On January 28 2022, Bharti Airtel announced that Google would invest up to US$ 1 billion in return for 1.28% ownership to enable affordable access to smartphones.
- In January 2022, Zomato announced plans to invest Rs. 112 crores (US$ 15 million) in ad-tech company Adonmo and Rs. 37.38 crores (US$ 5 million) in UrbanPiper.
- In February 2022, Adani Total Gas Ltd announced its investments in Rs. 20,000 crores (US$ 2.67 billion) in the city gas sector over the next 8 years.
- In December 2021, Indian Oil Corporation announced its plans to invest Rs. 9,028 crore (US$ 1.2 billion) to lay a new crude oil pipeline from Gujarat to Haryana.
- In March 2022, the total AUM of open end equity mutual funds stood at Rs. 13,65,465 crores (US$ 176.44 billion)
- Indian startups record US$ 2.6 billion funding in April 2022 driven mainly by Enterprisetech, Fintech and Media & Entertainment.
- Start-up investments made in India stood at US$ 36 billion between January 2021- December 2021, compared with VC investments of US$ 11.1 billion and US$ 14 billion in 2020 and 2019, respectively.
Government Initiatives
The Government of India has taken several initiatives across sectors to improve the overall economic condition in the country. Some of these are:
- On April 30, 2022, Minister of Ports, Shipping and Waterways, Mr. Sarbananda Sonowal announced that Cochin Shipyard Limited has committed to invest an initial corpus of Rs. 50 crore (US$ 6.47 million) in start-up companies engaged in the maritime sector.
- India's production-linked incentive (PLI) schemes generated investment commitments of Rs. 2.34 lakh crore (US$ 30.24 billion). Automobile and auto components, advanced chemistry cell batteries, specialty steel and high-efficiency solar panels have attracted the maximum interest.
- The government is expected to invest Rs.1.20 lakh crore (US$ 15.5 billion) in the automobile industry in the next five years and Madhya Pradesh makes a potential destination for investment by the auto sector.
- The Ministry of Education (MoE) has proposed an outlay of Rs. 1,102.91 crore (US$ 142.57 million) for Punjab in FY 2022-23 under the flagship Samagra Shiksha scheme for school education.
- Minister of Home and Cooperation, Mr. Amit Shah inaugurated newly constructed tourism facilities for SeemaDarshan at Nadabet in Banaskantha district of Gujarat. The Gujarat government spent Rs. 125 crore on the same.
- The government is all set to invest Rs. 70,000 crore (US$ 9.05 billion) projects in UP on June 3 to make UP the first choice of investors on all counts. This will include projects worth about Rs. 21,000 crore (US$ 2.72 billion) in the IT and electronics sector.
- Government approves investment of Rs. 19,077 crore (US$ 2.47 billion) for its textiles production linked incentive (PLI) scheme to 61 companies, including 7 foreign firms.
- Israel-based ISMC Analog Fab Private Ltd will invest Rs. 22,900 crore (US$ 2.96 billion) in Karnataka to set up a chip-making plant. India’s first semiconductor fabrication plant is expected to generate more than 1,500 direct jobs and 10,000 indirect jobs
- In February 2022, the Union Minister for Finance and Corporate Affairs, Ms. Nirmala Sitharaman announced a new scheme, Development Initiative for North East ‘PM DevINE’, allocating Rs. 1,500 crore (US$ 200.6 million).
- In February 2022, the Union Minister for Finance and Corporate Affairs Ms. Nirmala Sitharaman proposed to allocate Rs. 1,00,000 (US$ 13.37 billion) to assist states in overall investments.
- In January 2022, the cabinet committee on Economic Affairs approved equity fusion of Rs. 1,500 crore (US$ 200.6 million) in Indian Renewable Energy Development Agency Limited (IREDA).
- The Ministry of Finance has granted Rs. 7,309 crores (US$ 977.4 million) additionally to 11 states for undertaking reforms in the power sector in January 2022.
- Total 115 firms submitted their applications for the Production Linked Incentive Scheme for the Automobile and Auto Component Industry.
- In January 2022, Union Home and Cooperation Minister, Mr. Amit Shah laid foundation stones for 29 development projects totalling Rs. 2,450 crore (US$ 327.6 million) in Manipur.
- In January 2022, the government has sanctioned seven Mega Integrated Textile Regions and Apparel Parks with an investment of nearly Rs. 4,500 crore (US$ 601.8 million).
- On December 27 2021, Prime Minister, Mr. Narendra Modi visited Mandi to inaugurate hydropower projects worth over Rs. 11,000 crore (US$ 1.47 billion).
- In the next five years, the Airport Authority of India plans to invest roughly Rs. 25,000 crores (US$ 3.34 billion) on expansion and renovation of current terminals.
- In September 2021, the government approved a Production-linked Incentive (PLI) Scheme for the automobile and drone industries with an outlay of Rs. 26,058 crore (US$ 3.54 billion) to boost the country’s manufacturing capabilities.
- In September 2021, Civil Aviation Minister, Mr. Jyotiraditya M. Scindia, stated that the government plans to provide incentives of Rs. 120 crore (US$ 15.6 million) in the next three years under the PLI scheme for drones and drone components.
- In August 2021, the Union Cabinet approved an FDI (foreign direct investment) proposal of Anchorage Infrastructure Investment Holding Ltd., proposing an investment of Rs. 15,000 crore (US$ 2.04 billion) in India.
- In August 2021, the Indian government approved the Deep Ocean Mission (DOM) with a budget outlay of Rs. 4,077 crore (US$ 553.82 million) over the next five years.
Road Ahead
The mutual fund industry in India has been witnessing consistent growth in portfolio numbers over the past few years, as evidenced by the fact that 51 lakh new investor accounts were added in April-June, 2022. The Association of Mutual Funds in India (AMFI) is targeting a nearly five-fold growth in assets under management (AUM) to Rs. 95 trillion (US$ 1.30 trillion) and more than three times growth in investor accounts to 130 million by 2025.
To achieve a GDP of US$ 5 trillion by FY25, India needs to spend about US$ 1.4 trillion (Rs. 100 trillion) over these years on infrastructure. Liberal FDI policies, quick solutions to corporate disputes, a simplified tax structure, ease of doing business, and a boost to public and private expenditure are all part of India's attempt to implement reforms to unlock the country's investment potential, which is expected to improve the business environment.
In line with this, in May 2022, during the India-Denmark Business Forum, Prime Minister Mr. Narendra Modi applauded India's reforms and investment opportunities, and stated that those who don't invest in the country are bound to miss out. He stated that India's ongoing economic reforms have created investment opportunities in various sectors like renewable energy, health, ports, shipping, circular economy and water management, and invited Denmark, as well as other foreign countries, to invest in these sectors.
Note: Conversion rate used for July 2022 is Rs. 1 = US$ 0.013
References: Press Information Bureau (PIB), Media Reports, World Bank, Grant Thornton, Database of Indian Economy (DBIE), Knight and Frank
Partners
