India Inc's foreign investments to rise in next few years

"India's outward foreign direct investment should continue its rapid upward trend over the next few years, as more companies seek to transfer their products and services innovations to new markets, and acquire strategic international know-how and market shares, particularly in crisis-hit developed economies," the Vale Columbia Center on Sustainable International Investment said in a report.

According to the report titled 'Outward FDI from India', the country is now "world's 21 largest outward investor and Indian firms have invested over USD 75 billion overseas in the past decade."

The report said that substantial improvements in the country's economic performance and the competitiveness of its firms and their strategy, due to ongoing liberalisation in economic and outward FDI (OFDI) policies, made these developments possible.

India's average annual OFDI flows are now higher than those of many developed market economies and over a half of India's total 2002-2009 OFDI flows went into developed economies and most of them in the form of M&As.

Singapore has replaced Russia as the largest host to Indian OFDI, the report said.
Though there was a 25 per cent drop in Indian OFDI in 2009, Indian firms are once again increasing their overseas investment, including through mergers and acquisitions (M&As), the report said.

The global crisis caused Indian OFDI flows to fall from their high of USD 18.8 billion in 2007 to USD 14.5 billion in 2009, largely because Indian multinational enterprises had borrowed heavily in dollars to finance mega cross-border M&As.They were thus hit badly by the sharp rupee depreciation and tightened international credit conditions.

Between 2007 and 2009, the number of overseas M&As plummeted from 243 to 82; the total cross-border M&A value fell from USD 32.8 billion to USD 1.4 billion; and the average M&A size decreased from USD 135 million in 2007 to USD 17 million in 2009.
The report said the growth of Indian OFDI is expected to continue. The sectoral and regional distribution of Indian outward FDI is broadening.

Indian MNEs would continue to invest in developed-country based companies, particularly now that they are more affordable due to the global crisis. In addition, Indian MNEs are seeking more strategic investments in emerging markets, particularly in Africa.