According to Grant Thornton's India Watch, a quarterly analysis carried out by Grant Thornton UK LLP, the number of M&A and private equity deals involving companies based in India has remained strong in the first half of 2016. 750 deals were completed between January and June this year, with a value of almost $22 billion (as compared to 738 deals with a value of just over US$ 21 billion last year).
Domestic M&A activity in India remained robust, with 259 deals done, equating to $15.7 billion, a 12% year-on-year increase. Key deals included the Ultratech-Jaiprakash deal worth $2.4bn, and Tata Power-Welspun worth $1.4bn.
The analysis however reveals a fall in the number of cross-border M&A deals done, which can largely be attributed to uncertainty in global markets, weak commodity prices and the EU referendum.
With diminished demand from global investors, the number of inbound deals fell for the first time in five years from 60 deals valued at $5,725m in H1 2015 to 44 worth $3,896m in H1 2016. However, outbound deals increased indicating a strong desire by Indian investors to benefit from global market turbulence. While the number of deals fell from 60 to 54, the value doubled from $1,566m to $3,115m.
M&A activity focused largely on energy and natural resources (25%), manufacturing (22%) and IT & ITES (11%).
Private equity activity in the Indian market increased by 6%, from 466 in the first half of 2015 to 491 transactions in the same period in 2016. However, deal value fell 13%, with total investment valued at $6.1 billion in H1 2016.
Start-ups proved to be particularly popular, accounting for over two-thirds (69%) of the number of investments. The majority of deals (90%) however, were venture capital backed, rather than private equity, demonstrating a lack of big-ticket investments.
“During a period of relative uncertainty, with low commodity prices, the result of the EU referendum, and low expectations for global economic growth, Indian companies have continued to invest for growth. We have seen some big-ticket domestic M&A deals, as well as a number of VC deals. However, the macro-economic environment seems to have had some effect on the number of cross-border deals, with a fall in the number of international companies merging with or acquiring Indian targets for the first time in five years.
"The Indian economy is displaying signs of cautious optimism despite on-going challenges such as high inflation, a decline in capital expenditure and a delayed monsoon season, which could slow the pace of growth due to the economy's dependence on the agriculture sector.
"However, the ease at which business can now be conducted in India is appealing to investors and forecasters are already predicting that India will meet its growth target of 7.4% this year, and there are also high expectations for strong business performance, and investor interest. An uptick in private investments, de-leveraging by indebted Indian corporates and consolidation resulting from the impending passage of the GST bill should see an increase in the number of deals in the second half of the year.
“From a UK perspective, there are mixed views about what Brexit may mean for the Indian economy. As it becomes increasingly interlinked with the rest of the world, events such as the Brexit vote will inevitably have an l impact on India's domestic environment.
"The UK's exit may open up opportunities for Indian companies and investors through the possibility of better market access. We have already seen the UK conducting post-Brexit trade talks in India with the goal of preparing a free trade agreement between the two countries. The outcome of these initial activities will be key to determining the level of activity we see in the second half of the year."