News: Indian FDI flow set to change course

(TT 07/10/2006) New Delhi - India Inc is likely to make more investments overseas this year than it will receive.

Experts say the quest for global acquisitions among Indian corporate giants is responsible for the change in the scenario.

“For the first time outbound foreign direct investment (FDI) is going to exceed inward flow of foreign investment,” said D.S. Brar, chairman of GVK Biosciences, at a seminar on globalisation of Indian companies, quoting a study conducted by the Confederation of Indian Industry and Crisil.

The study estimates foreign direct investment flowing into India to be in the region of $7 to 8 billion during the current fiscal.

According to figures released by the government, FDI into India during the first four months of the current fiscal stands at $2.9 billion, which represents a 92 per cent increase over the first quarter of 2005-06.

However, the Crisil study feels with Indian companies venturing abroad in a big way in search for new markets, technology, low-cost bases and raw material, FDI outflow will surpass inflows this year.

“There is certainly a new dynamism in Indian companies because of globalisation and competition,” said Subir V. Gokarn, chief economist and executive director, Crisil.

“A lot of attention has been paid to foreign investment coming to India,” Brar said. “But what is not so well known is how active Indians have been in the past few years in making investments outside their home base.”

The top investor during the year was the government-owned State Bank of India with an overseas investment of $1.18 billion, followed by Dr. Reddy's Labs with $777 million and Suzlon Energy with $565 million.

Tata Tea has made an investment of $677 million in the US in the current fiscal, while state-run Oil and Natural Gas Corp (ONGC) has invested $410 million in Brazil for a stake in the energy sector.

Other major investments have been made by Aban Loyd in the energy sector of Norway worth $445 million, Matrix Labs’ $319 million in the pharma sector of Belgium and Ballarpur’s $261 million in the Malaysian paper industry.

The study also points out that the US was the largest recipient of investments from India during 2005-06 worth $1.05 billion, followed by Britain with $815 million and Belgium with $799.9 million.

The study shows that as many as 20 Indian pharmaceutical companies have invested in facilities abroad. The study says, “Firms need marketing and distribution assets to access markets and often the optimal strategy for successful penetration is to acquire a local marketing company or set up a subsidiary. Indian pharma companies are following exactly this strategy.”

Investment flows emanate from a large number of sectors and cover a large number of companies.

“Investments span across a large number of continents, finding its way into both developed and developing markets. The size of investments also vary considerably,” says the study.