US attracts India Inc most: Study

The US has emerged as not just the largest investor in India's booming economy but also tops the list of countries where India Inc is putting its money for mergers, acquisitions and alliances, says a new study.

Between 1996 and 2005, the US attracted the largest share of Indian investment worth $2.16 billion, says the study conducted by global consultancy Ernst and Young and the Federation of Indian Chambers of Commerce and Industry (FICCI).

Russia was next with $1.76 billion, followed by Mauritius ($1.04 billion) and Sudan ($964 million), says the study that highlights the growing appetite for globalisation among Indian companies.

The report attributes the large outflow of Indian investments to the impact of economic reforms, the opening up of overseas investment avenues, export drive and the hunger for new technology, competitiveness and new markets.

"The impact of these reforms on bilateral investments between India and the US has been far-reaching," says the report.

Portfolio and equity investments from the US - the largest investing country in India in terms of FDI approvals - encompass almost every sector which India has opened up for overseas participation, says the study.

This apart, investments by Indian companies in the US have also been picking up. Between April 2005 and January 2006, the Reserve Bank of India (RBI) gave its nod to the highest FDI outflow of $225.15 million to the US.

"However, the actual outflow may be higher as several investments may have fallen under the automatic (approval) route," says the report.

Reasons for venturing overseas have varied across industries, with the desire to acquire assets rather than set up own facilities being the main factor. In IT, the keenness to move closer to the customers has been a key motivator.

Based on publicly available data, the report highlights the fact that for the most part, Indian companies go in for cash deals, with few stock transactions. As per the analysis of the past two years, Indian companies have invested in around 60 US-based companies.

Telecom major Videsh Sanchar Nigam Ltd's acquisition of Teleglobe International Holdings for $254 million in July 2005 marked the largest investment made in the US by any Indian company.

While software and outsourcing firms have accounted for the largest number of deals in the last two years, their deal sizes have been generally small in value terms barring three cases that crossed $50 million mark.

Scandent's acquisition of 75 per cent stake in Cambridge Services Holding in an $120 million deal, Patni Computer System's $68 million deal for acquiring US-based Cymbal and WNS's acquisition of Arizona-based Trinity Partners for $63 million were the three mega IT overseas investment.

The pharma sector too has witnessed a rise in outbound investment as Indian firms aim to increase their global presence and penetrate new markets through local operations to satisfy regulatory requirements.

"The foreign purchase aids in expanding the product range of the company and acquired infrastructure helps entry into new markets," states the report.

In the case of sectors like telecom, textile and financial services, the primary motive has been the desire to acquire international assets, consolidate market and anticipation of stronger growth in the overseas market compared to the domestic market.

The industry report, which has been limited to equity investments in joint ventures and wholly owned subsidiaries, hopes that the trend of outbound investments and acquisitions will continue to surge as Indian companies pitch for larger assets overseas.