Investment

Investment in India

Over the years, India has emerged as one of the fastest growing economies in the world and an attractive investment destination driven by economic reforms and a large consumption base. It was the fastest growing major economy in 2017-18 with its GDP growing 8.2 per cent and reaching Rs 167.73 trillion (US$ 2.30 trillion). Between April-September 2018, the GDP (at constant 2011-12 prices) grew 7.6 per cent year-on-year. A host of factors has enabled this growth, which includes a highly developed financial system, infrastructure requirements and proactive government regimes. Domestic and foreign investments both have had made an impact on the country’s growth. Between April 2000 and June 2018, India has received equity inflows of US$ 389.60 billion through Foreign Direct Investments (FDI). Foreign Portfolio/Institutional Investors (FPI/FII) have invested around Rs 12.51 trillion (US$ 171.81 billion) in India between FY02-18. During April-August 2018, Foreign Institutional Investment in India stood at US$ 5.60 billion. The domestic stock markets ranked second globally in terms of number of Initial Public Offer (IPO) raised with 161 IPOs offering US$ 5.52 billion upto November 2018.

The country is on a fast pace growth and is expected to become a US$ 5 trillion economy by 2022. Going by the estimates of Government of India, the country will need investments of US$ 4.5 trillion to build sustainable infrastructure by 2040.

 

Foreign Direct Investment (FDI)

About FDI in India

Introduction

Apart from being a critical driver of economic growth, foreign direct investment (FDI) is a major source of non-debt financial resource for the economic development of India. Foreign companies invest in India to take advantage of relatively lower wages, special investment privileges such as tax exemptions, etc. For a country where foreign investments are being made, it also means achieving technical know-how and generating employment.

The Indian government’s favourable policy regime and robust business environment have ensured that foreign capital keeps flowing into the country. The government has taken many initiatives in recent years such as relaxing FDI norms across sectors such as defence, PSU oil refineries, telecom, power exchanges, and stock exchanges, among others.

Market size

According to Department of Industrial Policy and Promotion (DIPP), the total FDI investments in India April-September 2018 stood at US$ 22.66 billion, indicating that government's effort to improve ease of doing business and relaxation in FDI norms is yielding results.

Data for April-September 2018 indicates that the services sector attracted the highest FDI equity inflow of US$ 4.92 billion, followed by computer software and hardware – US$ 2.54 billion, telecommunications – US$ 2.18 billion and trading – US$ 2.14 billion. Most recently, the total FDI equity inflows for the month of September 2018 touched US$ 4.64 billion.

During April-September 2018, India received the maximum FDI equity inflows from Singapore (US$ 8.62 billion), followed by Mauritius (US$ 3.89 billion), Netherlands (US$ 2.32 billion), Japan (US$ 1.89 billion), and USA (US$ 0.97 billion).

Investments/ developments

India emerged as the top recipient of greenfield FDI Inflows from the Commonwealth, as per a trade review released by The Commonwealth in 2018.

Some of the recent significant FDI announcements are as follows:

  • In October 2018, VMware, a leading software innovating enterprise of US has announced investment of US$ 2 billion in India between by 2023.
  • In August 2018, Bharti Airtel received approval of the Government of India for sale of 20 per cent stake in its DTH arm to an America based private equity firm, Warburg Pincus, for around $350 million.
  • In June 2018, Idea’s appeal for 100 per cent FDI was approved by Department of Telecommunication (DoT) followed by its Indian merger with Vodafone making Vodafone Idea the largest telecom operator in India
  • In May 2018, Walmart acquired a 77 per cent stake in Flipkart for a consideration of US$ 16 billion.
  • In February 2018, Ikea announced its plans to invest up to Rs 4,000 crore (US$ 612 million) in the state of Maharashtra to set up multi-format stores and experience centres.
  • Kathmandu based conglomerate, CG Group is looking to invest Rs 1,000 crore (US$ 155.97 million) in India by 2020 in its food and beverage business, stated Mr Varun Choudhary, Executive Director, CG Corp Global.
  • International Finance Corporation (IFC), the investment arm of the World Bank Group, is planning to invest about US$ 6 billion through 2022 in several sustainable and renewable energy programmes in India.

 

Government Initiatives

Government of India is planning to consider 100 per cent FDI in Insurance intermediaries in India to give a boost to the sector and attracting more funds.

In December 2018, the Government of India revised FDI rules related to e-commerce. As per the rules 100 per cent FDI is allowed in the marketplace based model of e-commerce. Also, sales of any vendor through an e-commerce marketplace entity or its group companies have been limited to 25 per cent of the total sales of such vendor.

In September 2018, the Government of India released the National Digital Communications Policy, 2018 which envisages increasing FDI inflows in the telecommunications sector to US$ 100 billion by 2022.

In January 2018, Government of India allowed foreign airlines to invest in Air India up to 49 per cent with government approval. The investment cannot exceed 49 per cent directly or indirectly.

No government approval will be required for FDI up to an extent of 100 per cent in Real Estate Broking Services.

In September 2017, the Government of India asked the states to focus on strengthening single window clearance system for fast-tracking approval processes, in order to increase Japanese investments in India.

The Ministry of Commerce and Industry, Government of India has eased the approval mechanism for foreign direct investment (FDI) proposals by doing away with the approval of Department of Revenue and mandating clearance of all proposals requiring approval within 10 weeks after the receipt of application.

The Government of India is in talks with stakeholders to further ease foreign direct investment (FDI) in defence under the automatic route to 51 per cent from the current 49 per cent, in order to give a boost to the Make in India initiative and to generate employment.

In January 2018, Government of India allowed 100 per cent FDI in single brand retail through automatic route.

Road ahead

India has become the most attractive emerging market for global partners (GP) investment for the coming 12 months, as per a recent market attractiveness survey conducted by Emerging Market Private Equity Association (EMPEA).

Annual FDI inflows in the country are expected to rise to US$ 75 billion over the next five years, as per a report by UBS.

The Government of India is aiming to achieve US$ 100 billion worth of FDI inflows in the next two years.

The World Bank has stated that private investments in India is expected to grow by 8.8 per cent in FY 2018-19 to overtake private consumption growth of 7.4 per cent, and thereby drive the growth in India's gross domestic product (GDP) in FY 2018-19.

Exchange Rate Used: INR 1 = US$ 0.0143 as on December 31, 2018

References: Media Reports, Press Releases, Press Information Bureau, Press Trust of India

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Foreign Institutional Investors

Introduction

Foreign Portfolio/Institutional Investors (FPI/FII) have been one of the biggest drivers of India’s financial markets and have invested around Rs 12.51 trillion (US$ 171.81 billion) in India between FY02-18. Highly developed primary and secondary markets have attracted FIIs/FPIs to the country. Investments by FIIs/FPIs in India are regulated by the Securities and Exchange Board of India (SEBI) while the ceilings on such investments are maintained by the Reserve Bank of India (RBI). Following are the few types of FIIs investing in India:

  • Hedge Funds
  • Foreign Mutual Funds
  • Sovereign Wealth Funds
  • Pension Funds
  • Trusts
  • Asset management Companies
  • Endowments, University Funds, etc.

 

The total market capitalization (M-cap) of all the companies listed on Bombay Stock Exchange (BSE) rose to a record high level of Rs 142.25 trillion (US$ 1.95 trillion) in 2017-18.

Recent Developments/Investments

Some of the recent significant FII/FPI developments are as follows:

  • In 2018-19 (up to December 31, 2018), FIIs have pulled Rs 94,070 crore (US$ 13.48 billion) from the Indian financial markets.
  • Union Bank of Switzerland (UBS) maintained its Nifty target at 9,500 by March 2019.
  • In December 2018, Morgan Stanley raised its one year Sensex target to 47,000.
  • Investments by foreign portfolio investors (FPIs) in Indian capital markets have reached Rs 6,310 crore (US$ 904.11 million) in November 2018 (up to November 22, 2018).
  • In September 2018, Embassy Office Parks filed the papers for India’s first Real Estate Investment Trusts (REIT).

 

Government/Regulatory Initiatives

  • A report filed by a panel appointed by the Securities and Exchange Board of India (SEBI) on December 04, 2018 has proposed direct overseas listing of Indian companies and other regulatory changes.
  • In September 2018, the Securities and Exchange Board of India (Sebi) relaxed the Know-Your-Client (KYC) requirement for Foreign Portfolio Investors (FPIs).
  • In September 2018, SEBI allowed Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) to start commodity derivate segments.
  • SEBI has also allowed foreign entities to participate in the commodity derivatives segment of Indian stock exchanges, to help them hedge their exposures. It has also proposed to allow Non Resident Indians (NRIs) to invest through FPI route after meeting specific KYC norms.
  • In August 2018, SEBI reduced the timeline for public issue of debt securities from 12 days to six days.
  • Foreign Portfolio Investors are also allowed to invest up to 25 per cent in Category III Alternative Investment Funds (AIF) in India. Different types of funds such as hedge funds, Private Investment in Public Equity (PIPE) funds, etc. are operating in India as Category III AIFs.
  • Investments by FPIs have also been allowed in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trust (InvITs).

 

Road Ahead

India is being viewed as a potential opportunity by investors, with the economy having the capacity to grow tremendously. Buoyed by strong support from the government, FII investments have been strong and are expected to continue to improve going forward.

Mr Mark Machin, Chief Executive Officer, Canada Pension Plan Investment Board (CPPIB), has expressed confidence in the Indian equity market and stated that the country is one of the best investment destination based on its demographic growth, increased productivity, and long-term economic growth potential.

"The FII participation has been very consistent as far as India is concerned and we see the trend continuing. We have been overweight India in the context of Asia and emerging markets since November 2013 and that stance very much continues," said Mr Bharat Iyer, MD, Global Research, JP Morgan India.

Exchange Rate Used: INR 1 = US$ 0.0143 as on December 31, 2018

 

Domestic Investment in India

Introduction

The Government of India has taken significant initiatives to strengthen the economic credentials of the country and make it one of the strongest economies in the world. India is fast becoming home to start-ups focused on high growth areas such as mobility, e-commerce and other vertical specific solutions - creating new markets and driving innovation.

Rise in domestic investments has been one of the biggest contributors to the India growth story and the public and private sector have both enabled and sustained these investments. Following are the various investors driving the domestic investments in the country:

  • Government/Public Sector Enterprises’ Capital Expenditure
  • Private Sector Enterprise
  • Banks/Financial Institutions/Domestic Institutional Investors
  • Retail Investors

 

Market Activity

India’s Gross Fixed Capital Formation at constant prices was Rs 40.88 lakh crore (US$ 561.44 billion) in 2017-18. The Government of India forecasts capital expenditure to increase by 30 per cent from Rs 3 lakh crore (US$ 41.2 billion) in 2017-18 to Rs 3.9 lakh crore (US$ 53.6 billion) in 2019-20. Investments by Domestic Institutional Investors (DIIs) reached Rs 97,739.02 crore (US$ 14.00 billion) in 2018. The total number of investor accounts with 41 active mutual fund houses rose to a record 79.03 million at the end of October 2018 as against 71.35 million in March 2018, according to the data from Association of Mutual Funds in India (Amfi).

India has emerged as one of the strongest performers in terms of deals related to mergers and acquisitions (M&A). The value of M&A activity in India is estimated to have reached US$ 71.3 billion in 2018.

 2015-162016-172017-18


GFCF at Constant Prices


Rs 34.48 trillion
(US$ 473.57 billion)


Rs 37.98 trillion
(US$ 521.59 billion)


Rs 40.88 trillion
(US$ 561.44 billion)


Capex by BSE 200 Companies


Rs 3.28 trillion
(US$ 44.99 billion)


Rs 3.96 trillion
(US$ 54.36 billion)


Rs 3.96 trillion
(US$ 54.36 billion)

 

2015

2016

2017


Net Investments by DIIs


Rs 66,814.95 crore
(US$ 9.18 billion)


Rs 36,548.35 crore
(US$ 5.02 billion)


Rs 90,834.80 crore
(US$ 12.48 billion)


PE/VC Investments


US$ 19.6 billion


US$ 16.2 billion


US$ 24.4 billion

 

Investments/developments

With the improvement in the economic scenario, there have been quite a few investments in various sectors along with M&A in India. Some of them are as follows:

  • Private Equity (PE) investments in India have reached US$ 34.0 billion in 2018.
  • Total number of deal activity in India reached 1,640 in 2018.
  • In August 2018, Indian Oil Corporation announced a Rs 22,000 crore (US$ 3.02 billion) capex plan for 2018-19.
  • Mergers and acquisitions (M&A) activity in the country has reached US$ 71.3 billion in 2018.
  • Companies in India have raised around US$ 5.52 billion through Initial Public Offers (IPO) in 2018 (up to November).
  • In November 2018, assets managed by mutual funds reached Rs 24.03 trillion (US$ 344.31 billion).
  • Investments by Alternative Investment Funds (AIFs) increased 90 per cent year-on-year between April-June 2018 to Rs 74,893 crore (US$ 10.26 billion).
  • Reliance Industries Limited (RIL) is planning to invest over Rs 10,000 crore (US$ 1.37 billion) in Uttar Pradesh and Rs 5,000 crore (US$ 687 million) in West Bengal over the next three years.
  • Vedanta Resources Plc is planning to invest about US$ 9 billion in India over the next few years to expand its hydrocarbons and metals and mining businesses.
  • State Bank of India (SBI) and the World Bank have decided to sanction credit worth Rs 2,317 crore (US$ 318.21 million) to seven corporates towards solar rooftop projects to generate a total of 575 megawatt (MW) of solar energy.
  • Bharat Petroleum Corporation Ltd (BPCL) plans to invest Rs 1.08 trillion (US$ 14.83 billion) over the coming five years for expansion of operations across business segments, of which the company plans to invest Rs 45,000 crore (US$ 6.18 billion) in the petrochemicals segment.
  • Bharti Airtel Ltd has planned to invest about Rs 2,000 crore (US$ 274.67 million) over the next three years in Project Next, its digital innovation programme, in an attempt to strengthen its position in India's highly competitive telecommunications market.
  • Piramal Finance Ltd, an arm of Piramal Enterprises Ltd, invested Rs 485 crore (US$ 66.61 million) in the subsidiary of Apollo International Ltd, called Apollo LogiSolutions (ALS), a logistics solutions provider.
  • Coal India (CIL) plans to invest US$ 20-25 billion in next five years to achieve annual output of 1 billion tonnes by 2019-20.
  • Reliance Industries Ltd (RIL), along with its partner BP plc, has decided to invest US$ 6 billion for the development of new R-series gas fields in the KG-D6 block.
  • Private equity (PE) investments in the Indian real estate sector are estimated to have crossed US$ 4 billion in 2017, supported by Government of India's regulatory reforms over the past two years.

 

Government Initiatives

The Government of India has taken several initiatives in various sectors to improve the overall economic condition in the country. Some of these are:

  • The Securities and Exchange Board of India (SEBI) has approved Unified Payments Interface (UPI) payment mechanism for public issues which will commence from January 1, 2019.
  • In November 2018, the Government of India launched a support and outreach programme for the Micro, Small and Medium Enterprises (MSME) sector. It involves 12 key initiatives which will help the growth, expansion and facilitation of MSMEs across the country.
  • In September 2018, the National Digital Communications Policy (NDCP) has been approved by Government of India with the objectives of attracting US$ 100 billion in investments, improved broadband connectivity and generation of four million jobs in the telecom sector.
  • Securities and Exchange Board of India (SEBI) doubled the maximum investment by angel funds in venture capital undertakings to Rs 10 crore (US$ 1.37 million).
  • The Government of India has decided to invest Rs 2.1 trillion (US$ 28.8 billion) to recapitalise public sector banks over the next two years and Rs 7 trillion (US$ 95.9 billion) for construction of new roads and highways over the next five years.
  • India and Japan have joined hands for infrastructure development in India's north-eastern states and are also setting up an India-Japan Coordination Forum for Development of North East to undertake strategic infrastructure projects in the northeast.
  • Union Ministry of Shipping plans to raise US$ 15.8 billion in dollar equivalents at the interest rate of three per cent, for developing ships, building ports and improving inland waterways.
  • Ministry of environment and forests has granted environment clearance for 35-km coastal road connecting south and north Mumbai. The coastal road project is part of the US$ 9.52 billion transport infrastructure projects being undertaken by the state government and is expected to require an investment of US$ 1.34 billion.
  • The Government of India will provide soft loan of US$ 1 billion to sugar mills to help them clear part of their US$ 3.33 billion dues to farmers. The money shall be directly credited to the farmer’s bank accounts through the Pradhan Mantri Jan-Dhan Yojana.

 

Road Ahead

The Association of Mutual Funds in India (AMFI) is targeting nearly five-fold growth in assets under management (AUM) to Rs 95 lakh crore (US$ 1.30 trillion) and a more than three times growth in investor accounts to 130 million by 2025.

India’s GDP is expected to grow 7.3 per cent in 2018-19. This is on account of India’s attempt to implement reforms to unlock the country's investment potential to improve the business environment, liberalised FDI policies, quick solution to the corporate disputes, simplified tax structure, and a boost in both public and private expenditure.

The Central Electricity Authority (CEA) expects investment in India's power transmission sector to reach Rs 2.6 trillion (US$ 35.62 billion) during the 13th plan (2017-22).

India is expected to witness M&A activities worth US$ 50 billion in 2018, according to ASSOCHAM’s Year Ahead Outlook.

Exchange Rate Used: INR 1 = US$ 0.0143 as on December 31, 2018

References: Press Information Bureau (PIB), Media Reports, World Bank, Department of Industrial Policy & Promotion (DIPP), Grant Thornton, Database of Indian Economy (DBIE), Knight and Frank

 

Indian Investment Abroad - Overseas Direct Investment by Indian Companies

Introduction

Outbound investments from India have undergone a considerable change not only in terms of magnitude but also in terms of geographical spread and sectorial composition. Analysis of the trends in direct investments over the last decade reveals that while investment flows, both inward and outward, were rather muted during the early part of the decade, they gained momentum during the latter half.

There has been a perceptible shift in Overseas Investment Destination (OID) in last decade or so. While in the first half, overseas investments were directed to resource rich countries such as Australia, UAE, and Sudan, in the latter half, OID was channelled into countries providing higher tax benefits such as Mauritius, Singapore, British Virgin Islands, and the Netherlands.

Indian firms invest in foreign shores primarily through Mergers and Acquisition (M&A) transactions. With rising M&A activity, companies will get direct access to newer and more extensive markets, and better technologies, which would enable them to increase their customer base and achieve a global reach.

Market size

According to the data provided by Reserve Bank of India (RBI), India’s outward Foreign Direct Investment (OFDI) in equity, loan and guaranteed issue stood at US$ 11.33 billion in 2017-18 and US$ 1,093.6 million in October 2018.

India’s cumulative stock of Overseas Foreign Direct Investment (OFDI) stood at US$ 155 billion in 2017.

Investments/Developments

In a recent development, UK announced that India has become the third largest source of FDI for them as investments increased by 65 per cent in 2015 leading to over 9,000 new and safeguarded jobs.

Some of the major overseas investments by Indian companies were:

  • Ashok Leyland has set up a new facility in Dhaka, Bangladesh in a joint venture with IFAD Autos. The sales, service and spares facility is spread over 138,000 square feet and is going to cater to the entire range of Ashok Leyland vehicles.
  • Indian IT major Infosys is going to set up a technology and innovation hub in Texas and hire 500 American workers by 2020.
  • Tyre Manufacturer Balkrishna Industries is going to set up a US$ 100 million production facility in US. The plant will have an annual production capacity of 20,000 MT and will serve the entire American region.
  • Pharmaceutical major Cipla’s subsidiary, Cipla Maroc, opened a manufacturing plant for metered-dose inhalers in Ain Aouda in the Rabat region in Morocco. The facility is spread over a total area of 4,000 square meters and has a capacity of 1.5 million HFA metered-dose inhalers.
  • Apollo Tyres has commenced commercial production of its truck tyres at its facility in Hungaria. This is the company’s second facility in Europe and has an installed capacity of 14,000 passenger car tyres a day and 1,200 truck tyres a day.
  • Pidilite Lanka Pvt Ltd, ahesives manufacturer Pidilite’s joint venture (JV) company with Macbertan Pvt Ltd, unveiled a new world class manufacturing plant in Sri Lanka. The plant is spread over an area of four acres and will help the company enhance its market share in the country.
  • India’s cinema companies are planning to foray into the Middle East and North Africa (MENA) region. Carnival Cinema’s is planning to open 500 screens in Saudi Arabia over the next five years. Also, PVR Cinemas has signed a memorandum of understanding (MoU) with Dubai-based Al-Futtaim Group to explore opportunities for entering the cinema business in the MENA region.
  • Thirumalai Chemicals’ subsidiary in Malaysia is going to enhance its Maleic Anhydride production capacity to 65,000 tons per year. Further, Thirumalai Chemicals is exploring the possibility of setting up a greenfield facility for production of food ingredients in US, which will serve the North American and European markets.
  • Mahindra & Mahindra Ltd entered into a joint venture (JV) with Ideal Motors Ltd to set up an automotive assembly plant in Sri Lanka. The plant will provide new opportunities to both the companies in Sri Lanka, which is one of Mahindra’s top three export markets.
  • Indian IT services provider Tech Mahindra is going to invest Rs 5.1 billion (US$ 78.54 million) in Canada over the next five years for setting up of a centre of excellence which will operate on major technologies such as blockchain application and Artificial Intelligence (AI).
  • Indian firms have employed a total of 113,423 people and made investments over US$ 17.9 billion in the US.
  • Sterlite Power has won a 1,800 km power transmission project worth US$ 800 million in Brazil, the company's third project in Brazil and the largest ever project won by an Indian company in Latin America.
  • Indian conglomerate, Reliance Industries Ltd (RIL), is going to invest US$ 25 million in Israel-based Jerusalem Innovation Incubator (JII), which will focus on startups working in the field of big data, analytics, Internet of Things and other similar areas.

 

Government initiatives

  • Government of India’s Public Sector Undertakings (PSUs) have invested over US$ 15 billion in Russia’s oil and gas projects and are planning to undertake more investments in the country’s oil and gas fields.
  • The RBI, encouraged by adequate forex reserves, has relaxed the norms for domestic companies investing abroad by doing away with the ceiling for raising funds through pledge of shares, domestic and overseas assets. In addition to joint ventures (JVs) and wholly owned subsidiaries (WOSs), the central bank has announced similar concessions for pledging of shares in case of step down subsidiary.
  • The RBI also liberalised/ rationalised guidelines for foreign investments abroad by Indian companies. It raised the annual overseas investment ceiling to US$ 125,000 from US$ 75,000 to establish JV and wholly owned subsidiaries. The government's supportive policy regime complemented by India Inc.’s experimental outlook could lead to an upward trend in OFDI in future.
  • The Union Cabinet has permitted ONGC Videsh to acquire 11 per cent stake in Russian oil company JSC Vankorneft from Rosneft Oil Co. for US$ 930 million.

 

Road ahead

Overseas investment is one of the foremost steps to enter the global marketplace and in recent times, India has taken necessary steps to make its presence felt in the global arena. Investment outlook in some of the overseas market looks positive. For instance, the Indian industry is projected to increase its revenue from Africa. IT services, infrastructure, agriculture, pharmaceuticals and consumer goods are vital to India boosting Africa revenues to US$ 160 billion by 2025, as per McKinsey & Co.

In another development, the Ministry of External Affairs has initiated a move to set up a direct sea and air link between India and the Latin American region, as Indian corporates plan significant investments in the mining, oil, IT and pharmaceutical sectors in that region.

Overseas investments by India companies are expected to increase, backed by stable market conditions and considerable impact of the investments on local economies.

Exchange Rates Used: INR 1 = US$ 0.0143 as on December 31, 2018

References: Department of Industrial Policy and Promotion (DIPP), Media Reports and Press Releases, Press Information Bureau (PIB), Reserve Bank of India (RBI), Directorate General of Foreign Trade, 'Indian Roots, American Soil' by the Confederation of Indian Industry (CII), CII EY Bertelsman Foundation

 

Some Important Websites:

https://www.investindia.gov.in/

https://indiainvestmentgrid.com/portal/

https://www.ibef.org/

Department of Commerce, Government of India

Department of Industrial Policy & Promotion, Government of India

Department of Industrial Policy & Promotion, Government of India

http://indiainbusiness.nic.in/newdesign/index.html


Embassy of India Ulaanbaatar, Mongolia