India’s outward FDI flows to the US have been consistent, and a bilateral investment treaty could help foster further investment opportunities, a report released by Ficci-EY said. Time is also opportune for US companies to scale up their engagement with Indian businesses, leveraging the economic multipliers that exist on both sides.
This has been highlighted in the latest edition of the Ficci-EY report on “Direct Investments in the US by Indian Enterprises”.
The report - fifth in a series initiated in 2006 — seeks to unravel the lesser known story of Indian FDI into the US. Its release comes during the ongoing visit of US President Barack Obama to India.
It is widely expected that Obama’s visit will give a new impetus to Indo-US ties, leading to resumption of dialogue on a bilateral investment treaty. The report highlighted that Indian investments in the US had remained strong during October 2012 to December 2014. Of the total 268 outbound acquisitions made by Indian companies between October 2012 and December 2014, as many as 71 were made in the US, with a cumulative disclosed value of $2.9 billion.
The actual investment in the US would be even greater as the value is available for only 22 transactions out of total 71, the report said. The US share in India’s total outward FDI has increased to 7.8 per cent in 2013-14 from 5.5 per cent in 2008-09.
Key challenges Financing outbound M&A has been a key challenge for Indian corporate entities, says the report. The outbound deals of Indian companies in the US are predominantly debt-financed, with cash being a popular mode of payment.
The trend is probably an extension of India Inc’s traditional preference for cash transactions in the domestic M&A space.
Another reason for conducting cash deals could be that a large number of Indian companies making acquisitions in the US find it difficult to get sellers who are willing to accept stocks, especially in view of volatile nature of Indian stock markets.
Also, the depreciation of the Indian rupee against the US dollar has proved to be a significant headwind. Acquiring companies in the US has become more expensive than ever before for Indian companies.
Outlook The coal, steel and oil and gas sectors are likely to drive deal values in the near future, the report said.
On the other hand, pharmaceuticals and healthcare segments are likely to drive deal volumes, riding on the upcoming generic opportunities and the size of the US market.
Also, the technology sector is expected to maintain the current momentum and contribute heavily to deal volumes.
Traditional segments such as business process outsourcing (BPO) and upcoming segments such as data analytics and cloud computing are likely to be under focus.