India better investment destination that China: EY report

Mumbai: India is at the top of the list of most attractive investment destinations beating China, according to EY’s ninth bi-annual Capital Confidence Barometer, released on Sunday. This is based on a survey of 1,600 senior executives across at least 70 countries. The findings of the survey highlight the long-term confidence that investors continue to maintain in India as an investment destination.

US, France and Japan are the top three nations likely to invest in India, according to the report.

At 38%, job creation expectations in the country are up from 29% six months ago and back to where they were a year ago.

While India moved up to the top slot of the attractive investment destinations list, China was down to the third slot as Brazil closely followed India. With sharp currency depreciation and opening up of foreign direct investment in various sectors, India has become an attractive destination for foreign investors, the report said.

Furthermore, due to the present macroeconomic pressures and heavy debt pile, several Indian companies are looking to divest non-core businesses. This has created a large opportunity for foreign players vying for a greater role in the Indian market, the report said. Sectors with the highest level of anticipated deal-making include automotive, technology, life sciences and consumer products.

Of the respondents, 38% believe that M&A (mergers and acquisitions) volumes in the country are expected to improve over the next 12 months, while 30% feel that it will remain stable.

The investor outlook for India remains positive, despite the challenges the country’s economy has faced in the recent past, said Amit Khandelwal, national leader and partner, transaction advisory services, EY.

“At the same time, the improved condition of the world economy has helped increase confidence among deal makers, prompting them to take a bolder stance towards executing transactions. Also, the Fed’s reassurance on not pulling back stimulus in the near term has boosted confidence in the board rooms,” said Khandelwal.

It is not just EY that is noticing the warming up of investors for India. Sanjeev Krishnan, executive director of PricewaterhouseCoopers, says there has been a noticeable decrease in the negativity about India over the last six months.

“When it comes to China, there is a rising misgiving that it hasn’t done much to support its growth. Brazil was beginning to challenge India as an investment destination, but now strategic clients are noticing that its growth rates are not too high and that its currency (Brazilian Real) is probably the only one that performed worse than rupee,” Krishnan said.

Almost 70% of global executives expect deal volumes and deal sizes to improve over the next 12 months. And 35% of global executives are planning acquisitions, up from 25% a year ago.

The positive outlook around deal-making globally stems from a growing economic confidence, which has risen dramatically over the past 12 months—65% expect the global economy to improve, compared to just 22% a year ago. The percentage of executives who see the economy declining fell to 11%, the lowest level in two years. Growth is now a global imperative as almost 60% of companies say they plan to accelerate their growth strategies over the next 12 months.

“M&A sentiments are being buoyed by a much more positive view of deal fundamentals. All of this is underpinned by growing confidence in a global economy on sounder footing—improving economic conditions in mature economies and more stabilization in the major emerging markets,” said Pip McCrostie, EY’s global vice-chair, transaction advisory services.

Executives who expressed the intent to engage in momentum-creating deals (in the range of $501 million to $1 billion) more than doubled from six months ago.

Indian corporate entities have started looking at developed markets for making acquisitions, with three of the five destinations being developed economies. After two years, European countries (UK and Germany) have made a comeback on the potential investment destinations list for Indian companies.

Over the past 12 months, the focus of leading corporates’ capital agenda has shifted—the appetite to invest has increased by more than a third, while the intention to preserve capital has halved, the report said.

“This does not mean we will see a return to boom-time deal-making. That was unsustainable,” said Khandelwal. “For many, organic measures alone can no longer meet growth mandates and deals will be the best route to meaningful growth. Barring any further significant economic or geo-political shocks, we should see the resuscitation of a global M&A market which has flat-lined in recent years.”

RANJAY KUMAR

PGDM 1st YEAR 

MINT