An increasing number of Indian companies are now reaching out for overseas destinations in order to access high growth markets, technology and knowledge, boost their positioning in the value chain, attain economies of size and scale of operations, to tap global natural resource banks and leverage international brand names for their own brand building.

According to the latest UNCTAD's World Investment Report 2007 (WIR '07), India’s outward foreign direct investment (FDI) was the second highest at US$ 20.4 billion after Brazil at US$ 28 billion. Significantly, while China's outward FDI rose by 32 per cent, to US$ 16 billion in 2006, India's outward FDI went up by almost four times.

According to a Reserve Bank of India's (RBI) report published in July 2008, India's total outbound investments in joint ventures and wholly owned subsidiaries (WOS) abroad grew by 53.2 per cent in financial year 2008, at US$ 23.07 billion, as against US$ 15.06 billion in the previous fiscal. The overall number of proposals during financial year 2008 has totalled to 2,261, with a growth of 24.4 per cent over the 1,817 proposals registered, and 53.2 per cent in amount of investment over the previous year.

FDI Outflows

Further, according to the RBI report, actual outward FDI during 2007–08 totalled US$ 17.43 million, a rise of 29.6 per cent over US$ 13.45 million, in the previous year. Of the total investments, 81.6 per cent were in the form of equity and the remaining 18.4 per cent in the form of loans. Almost 35 per cent of the proposals for outward FDI were directed towards Singapore, around 23 per cent to Netherlands, followed by British Virgin Islands with seven per cent. Equity accounted for 61.2 per cent of the proposals for investment, loans for 11.4 per cent, and guarantees for 27.4 per cent. During 2007-08, automatic route covered 99.6 per cent of the proposals, involving 96.4 per cent of the amount of investments. The remaining was through approval route. Inflows from India's outward FDI amounted to US$ 916 million in FY 2008, registering a 76.7 per cent growth over the previous year's figure of US$ 518 million.

Actual outward FDI during the quarter January-March, 2008 stood at US$ 7.32 million, which was higher by 63.4 per cent than the figure during previous year. Of the total investments, 70 per cent were in the form of equity and the remaining 30 per cent were loans. For the quarter ended March, 2008, Singapore, Mauritius, Cyprus and UAE together received 50 per cent of the outward proposals worth US$ 5 million or above, RBI said. During the year, almost 43 per cent of the proposals came from manufacturing, followed by non-financial services with 11 per cent, and trading with four per cent.

Mergers and Acquisitions

A significant part of Indian overseas investment has gone into acquisitions abroad.

In its latest report, Grant Thornton, a global consultancy firm, stated that "The total number of M&A deals during the first 11 months of 2008 stood at 433, with an announced value of US$ 31.95 billion. The number of outbound deals has far exceeded the domestic ones in terms of value break up. According to Grant Thornton’s Special Advisory Services official, for the month of November alone, there were 26 M&A deals with a total announced value of US$ 3.40 billion, which is higher than October 2008 at US$ 2.13 billion and comparatively higher than November 2007 levels at US$ 850 million. Out of the 15 cross-border deals in November, eight were outbound wherein Indian companies acquired business abroad with a value of US$ 0.04 billion. The most important acquisition has been that of UK-based Axon Group by HCL Tech for about US$ 658 million.

Also, the total number of PE deals during January-November 2008 stood at 295, with a total announced value of US$ 10.11 billion. Further, as many as 21 PE transactions were confirmed during November with an announced value totalling US$ 449 million.