Indian Investment Abroad - Overseas Direct Investment by Indian Companies

Introduction

Outbound investments from India have undergone a considerable change not only in terms of magnitude but also in terms of geographical spread and sectorial composition. Analysis of the trends in direct investments over the last decade reveals that while investment flows, both inward and outward, were rather muted during the early part of the decade, they gained momentum during the latter half.

There has been a perceptible shift in Overseas Investment Destination (OID) in last decade or so. While in the first half, overseas investments were directed to resource rich countries such as Australia, UAE, and Sudan, in the latter half, OID was channelled into countries providing higher tax benefits such as Mauritius, Singapore, British Virgin Islands, and the Netherlands.

Indian firms invest in foreign shores primarily through Mergers and Acquisition (M&A) transactions. With rising M&A activity, 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.

Market size

India has emerged as one of the strongest performers in the deal-street across the world in mergers and acquisitions. M&A deal volume in India increased 14 per cent to 1,022 transactions, worth US$ 46.8 billion, in 2017.

According to the data provided by Reserve Bank of India (RBI), India’s outward Foreign Direct Investment (OFDI) in equity, loan and guaranteed issue stood at US$ 784.28 million in the month of February 2018 as against US$ 866 million in January 2018 and US$ 1.35 billion in February 2017.

Investments

In a recent development, UK announced that India has become the third largest source of FDI for them as investments increased by 65 per cent in 2015 leading to over 9,000 new and safeguarded jobs.

Some of the major overseas investments by Indian companies were:

• Indian IT services provider Tech Mahindra is going to invest Rs 5.1 billion (US$ 78.54 million) in Canada over the next five years for setting up of a centre of excellence which will operate on major technologies such as blockchain application and Artificial Intelligence (AI).
• Indian firms have employed a total of 113,423 people and made investments over US$ 17.9 billion in the US.
• During 2016, Indian companies in Germany employed a total workforce of 27,400, while their combined revenue reached Rs 87,506 crore (US$ 13.65 billion).
• Sterlite Power has won a 1,800 km power transmission project worth US$ 800 million in Brazil, the company's third project in Brazil and the largest ever project won by an Indian company in Latin America.

• Indian conglomerate, Reliance Industries Ltd (RIL), is going to invest US$ 25 million in Israel-based Jerusalem Innovation Incubator (JII), which will focus on startups working in the field of big data, analytics, Internet of Things and other similar areas.
• Adani Enterprises Ltd has announced the final approval of the company's board to proceed with the US$ 16.5 billion worth Carmichael mine and rail projects in Central Queensland, Australia, which would be one of the largest single infrastructure and job creating developments in Australia’s recent history.
• Intas Pharma has announced purchase of two companies in UK and Ireland, Actavis UK Ltd and Actavis Ireland Ltd, from Israeli pharma major Teva Pharmacuetical Industries Ltd, for an enterprise value of GBP 600 million (US$ 754.14 million).
• India-focused private equity firm Everstone Group, through its Singapore arm Everise Services, has agreed to buy C3, a US-based global CRM solutions provider, for an estimated deal value of US$ 150 million.
• India’s third largest software services firm Wipro will be spending US$ 500 million to acquire US-based cloud services firm Appirio.
• Adani Enterprises has announced plan to develop 1,000 megawatt (MW) of solar power projects in Australia over the next five years.
• Sun Pharmaceutical Industries Ltd, India's largest drug maker, has entered into an agreement with Switzerland-based Novartis AG, to acquire the latter’s branded cancer drug Odomzo for around US$ 175 million.
• WNS Global Services, the Mumbai-based business process management company, has announced its plans of acquiring Denali Sourcing Services, a US-based business process outsourcing company, for US$ 40 million.
• Aurobindo Pharma has bought Portugal based Generis Farmaceutica SA, a generic drug company, for EUR 135 million (US$ 146.67 million).
• Motherson Sumi Systems Ltd, an automobile components manufacturer, has acquired Finland-based truck wire maker PKC Group Pic for EUR 571 million (US$ 620.36 million).

Government initiatives

• The RBI, encouraged by adequate forex reserves, has relaxed the norms for domestic companies investing abroad by doing away with the ceiling for raising funds through pledge of shares, domestic and overseas assets. In addition to joint ventures (JVs) and wholly owned subsidiaries (WOSs), the central bank has announced similar concessions for pledging of shares in case of step down subsidiary.
• The RBI also liberalised/ rationalised guidelines for foreign investments abroad by Indian companies. It raised the annual overseas investment ceiling to US$ 125,000 from US$ 75,000 to establish JV and wholly owned subsidiaries. The government's supportive policy regime complemented by India Inc.’s experimental outlook could lead to an upward trend in OFDI in future.
• The Union Cabinet has permitted ONGC Videsh to acquire 11 per cent stake in Russian oil company JSC Vankorneft from Rosneft Oil Co. for US$ 930 million.

Road ahead

Overseas investment is one of the foremost steps to enter the global marketplace and in recent times, India has taken necessary steps to make its presence felt in the global arena. Investment outlook in some of the overseas market looks positive. For instance, the Indian industry is projected to increase its revenue from Africa. IT services, infrastructure, agriculture, pharmaceuticals and consumer goods are vital to India boosting Africa revenues to US$ 160 billion by 2025, as per 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 corporates plan significant investments in the mining, oil, IT and pharmaceutical sectors in that region.

Exchange Rates Used:

INR 1 = US$ 0.0154 as on March 28, 2018

References: Department of Industrial Policy and Promotion (DIPP), Media Reports and Press Releases, Press Information Bureau (PIB), Reserve Bank of India (RBI), Directorate General of Foreign Trade, 'Indian Roots, American Soil' by the Confederation of Indian Industry (CII), CII EY Bertelsman Foundation