India Inc is on the march. Last month’s bid by Tata Steel to buy the UK’s Corus Group for £4.3 billion ($8 billion) is the latest and most high-profile example of a company from the subcontinent attempting to gobble up assets in the developed world. While financial commentators have been transfixed by similar moves from Chinese, Middle Eastern and even Russian firms, most have ignored Indian companies’ advances. That will no longer be true after the Tata bid.
Overseas investment by Indian companies has reached such a scale that this year it is outpacing foreign direct investment into the country. So far in 2006 Indian companies have made more than 130 cross-border acquisitions (in emerging and developed markets), totalling nearly $19 billion, according to the Times of India. In contrast, India has received just over $9 billion in FDI flows.
Companies across a number of sectors are buying cross-border assets, including pharmaceuticals, IT, biotech, energy and industrials. Before the Tata Steel bid, perhaps the most eye-catching deals were Dr Reddy’s Laboratories’ $571 million acquisition of German pharmaceuticals company Betapharm in March and Ranbaxy Laboratories’ forays into Italy, Romania and Belgium. This is not including Mittal Steel’s $38 billion deal for Arcelor that was agreed in May. Although the company’s chief executive, Lakshmi Mittal, is an Indian citizen his company is based in London and Rotterdam.
Indian firms’ foreign expansion reflects three themes. The first is India’s booming economy, which shows no signs of slowing down. Prime minister Manmohan Singh said last month that he expected the economy to grow by 9% to 10% annually for the next five years. Then there is the speed at which Indian industry is maturing. Corporates now have scale and technological know-how to compete with international rivals. The very best Indian companies, such as Tata and Reliance Industries, also have deep pockets. In the first half of its fiscal year, Reliance, for example, made a net profit of $1.1 billion. The final reason for India Inc’s march is that the country’s companies are finally embracing globalization. For years India has viewed the outside world with suspicion. Now that is changing. Far from fearing global competition, Indian companies welcome it. These moves will also have a beneficial knock-on effect on India’s capital markets as companies seek ways to raise cash to finance their aggressive moves.
