India witnessed a massive surge in merger and acquisition (M&A) deals driven by foreign investors. But Chinese state media writes that India may not be able to sustain such investments and investors will be driven back to China. EurAsian Times brings to you a Global Times report.
Experts cautioned that India’s unstable trade policy might keep investors from making further moves in the market after deals are done. They also said that as China is put on a more competitive footing with its push for further reform and opening-up, the country may divert some of the foreign investment away from India.
M&As targeting Indian companies reached $93.7 billion this year, up 52 percent year-on-year, the highest figure since the country started opening-up in the 1990s. Acquirers spent $39.5 billion in overseas purchases in India versus $32.8 billion in China, according to a report from the Wall Street Journal, which cited Dealogic, a financial markets platform.
“India has a wealth of experience in utilizing international capital, and the country has been striving to promote its business climate for many years. There’s no doubt it has become more attractive to foreign investors,” Zhao Gancheng, director of the Center for Asia-Pacific Studies at the Shanghai Institute for International Studies, told the Global Times on Thursday.
Apart from its traditional strengths in sectors such as software, India has been promoting its manufacturing and infrastructure industries, and that’s attracted investors from such markets as Japan, Zhao said.
Chinese companies including Alibaba Group Holding are pumping capital into some industries such as food delivery in India, eyeing its rising younger generations and their growing consumption power.
The country is projected to maintain robust growth. According to the World Economic Outlook released by the IMF in July, GDP growth in China is projected to be 6.6 percent in 2018 and 6.4 percent in 2019, while India’s growth rate is expected to be 7.3 percent in 2018 and 7.5 percent in 2019.
However, Dai Yonghong, professor at the Institute of South Asian Studies of Sichuan University, warned that the surge in M&A deals this year might be temporary, and many of them may not turn out to be profitable.
“Some of these deals were carried out as hedges by foreign investors because of the unstable China-US trade relationship. With the continuous push of China’s reform and opening-up, and the new policies that may be rolled out to attract foreign investors next year, it’s possible that some of these investors might turn back to China,” Dai told the Global Times on Thursday.
Experts also noted that frequent policy shifts pose potential risks for foreign companies that do business in India.
According to a Reuters report on Thursday, India will ban e-commerce companies such as Amazon.com and Walmart-owned Flipkart Group from selling products from companies in which they have an equity interest.
The new rules will be applicable from February 1, and might force these tech giants to adjust their business strategies in India.
Dai noted that given the volatile situation, even after foreign buyers have executed deals, they will take a wait-and-see attitude instead of making major moves in the local market.
“It’s a tricky thing. As a developing and emerging economy, India has to protect domestic businesses, which runs contrary to a more open policy toward foreign investors,” Zhao said. Experts noted that ahead of national elections scheduled for May, there might be more uncertainties for foreign companies.