By Ajay Khanna

Pick up any pink newspaper and the chances are you'll see at least one news item of an Indian company acquiring a firm overseas. No wonder, foreign direct investment (FDI) outflows from India now exceed inflows. June alone saw the closure of 10 cross-border big time deals with a combined transaction value of US$ 1.5 billion. Around 76 deals worth US$ 5.2 billion were cut in six months between January and June this year. In comparison, the whole of 2005 saw 136 deals at a value of US$ 4.7 billion. This could well be the beginning of a global presence for Indian companies. In Unctad's outward FDI performance index rankings covering 132 economies, India improved its rank from 80 in 1990 to 54 in 2004.

The focus of India Inc’s global shopping spree reflects the industries that are powering the country’s growth domestically too. A recent study, titled India Inc Goes Abroad, shows that the software/BPO (at 33.6%) and pharma/healthcare (at 20.5%) sectors account for more than half of the overseas acquisitions. According to this report, global investment bankers are courting Indian companies more as buyers than as sellers. In a recent conversation with the CEO of an international consulting firm, I was told that the firm’s client base was changing rapidly in favour of Indian firms keen on going global.

The Indian MNC has arrived. The largest proportion of Indian acquisitions have been in Europe (around 40%) and North America (around 34%), showing that Indian companies have acquired the confidence to invest in more developed economies (MAPE research report).

A recent report published by India Brand Equity Foundation,Going Global:India Inc in UK, draws attention to this very fact. India has emerged as the third largest investor in the UK, raising its rank by five notches in a single year. Indeed, the biggest Indian investor in the UK with 16 companies employing 3,000 people is the Tata Group.

In the automotive sector, Tata Motors, Mahindra & Mahindra and Bharat Forge have adopted the M&A route to become multinationals. Companies like Bharat Forge, in fact, derive a significant proportion of their revenues from their overseas acquisitions. Similarly, in the chemical industry, Asian Paints, Tata Chemicals, United Phosphorus and GHCL have made acquisitions in countries like Egypt, Romania, the US and the UK. In the consumer sector, Dabur, Godrej and Tata Tea have made sizeable acquisitions. In heal-th care, companies like Dr Reddy’s, Ran-baxy, Wockhardt, Nicholas Piramal, Jubilant and Sun Pharma are global names. Not only are Indian companies investing all over the world, they are now beginning to get comfortable with acquisitions of much larger global companies. The case of Tata Coffee acquiring US-based Eight O’Clock, which is around 2.5 times its size, is a case in point.

India is making rapid strides. In recent years, deals involving Indian companies acquisitions’ of companies in developed markets bear testimony to its rapid emergence, capable of taking on multinationals headquartered in the OECD countries. A survey done by Grant Thornton India in May this year suggests that corporate India is looking forward to aggressive growth through the M&A route. According to this survey, 81% of the 200 companies surveyed said they were exploring the M&A option to grow. Of the total, only 30% of the surveyed companies had actually undertaken any M&A in the past, indicating the likelihood of a sharp surge in M&A activity in the future.

What is more, India has the potential to emerge as a leader in terms of outward FDI outflows among Bric countries. One index: India’s FDI outflows as a percentage of gross fixed capital formation (GFCF) have risen steadily as opposed to the other Bric economies. From 0.01% in 1983-85, it rose 0.1% in 1993-95 and then to 1% in 2001-03. As opposed to this, China’s FDI outflow as a percentage of GFCF grew from 0.3% in 1983-85 to 1.3% in 1992-95 and then fell to 0.9% in 2001-03. The corresponding figures for Brazil were 0.3%, 0.7% and 0.2%.

All of this suggests a strong future for India Inc on the world stage as domestic companies grow in confidence and reap the dividends of globalisation. The penchant of Indian firms to acquire companies overseas should give it an edge over other Bric economies.

—The author is CEO, India Brand Equity Foundation and Deputy Director General, CII. These are his personal views