Global Finance (Magazine)

Emerging Markets Roundup: India

SLACKENING M&A MAY PICK UP AS MONETARY POLICY EASES

By Aaron Chaze

Corporate dealmaking in India has declined in the period of the year through October 2011.

According to global consulting firm Grant Thornton, domestic and cross-border mergers and acquisitions by Indian companies totaled $33.6 billion—down from $42.9 billion in announced deals during the same period in 2010. This is a 22% fall year-on-year.

The top five deals accounted for 79% of deal flow. However, private equity deals have continued to grow, reaching $7.2 billion to October 2011, compared to $4.9 billion over the same period last year—a growth of 47%. The manufacturing sector was the most active, followed by IT and healthcare.

Corporate dealmaking has been stymied by relatively high interest rates and the resultant high cost of finance, but that may soon change. The Reserve Bank of India (RBI) could start easing its tight monetary policy in December or January, according to the prime minister’s Economic Advisory Council, which noted in a recent release that inflation is likely to decline, and a reversal in monetary policy could follow. The Indian central bank has raised its policy interest rates 13 times in the past 20 months. The repo rate rose to 8.50% by October this year—from 5.0% in April 2010. Inflation rose to 9.72% in October from 8.87% a year earlier, though it eased slightly from 9.78% in September this year.

According to the Report on Internet in India 2011—published jointly by the Internet and Mobile Association of India and IMRB, an international market research and business consultancy, Internet penetration in India will grow to 121 million users by December 2011. In September the user base was estimated at 113 million and the report cites an annual growth rate of 13%. In smaller centers—with populations less than 500,000— Internet penetration is growing at the much faster pace of 60% annually.