Investor interest in India continued in 2012, albeit at levels below previous years, according to Grant Thornton UK’s India Watch Index.
Full year performance remained strong, but growth in the fourth quarter was flat.
Overall, Grant Thornton India Watch Small Caps Index closed eight per cent up at the end of 2012, outperforming the FTSE100 (six per cent) and FTSE AIM All Share Index (two per cent).
A cautious deal making environment prevailed in 2012 with a significant decline in strategic mergers and acquisitions (M&A) deal values and fewer “bulge bracket” deals compared to 2011. 1,001 deals completed with a total value of USD49bn in 2012 vs. 1,017 with a value of USD53bn in 2011. Contrary to most expectations it was actually outbound activity, rather than inbound, that had a higher value in 2012 vs. 2011.
Mining and oil and gas were the most prolific sectors for M&A deal activity in the year, whereas private equity (PE) activity continued its momentum driven by IT and ITES, pharma, healthcare and biotech, banking and finance and real estate.
Anuj Chande, partner, corporate finance and head of South Asia group at Grant Thornton UK, says: "It appears that the positive impact of the series of reforms announced by the Indian government was offset by investors’ concerns about the growing fiscal deficit, inflation and the slowing down of the Indian economy.
"Reforms unveiled by the Indian government in December 2012 included allowing overseas multinational retail giants to own up to 51 per cent of multi-brand stores, foreign investors to own up to 49 per cent of domestic air carriers, and foreign media conglomerates to increase their ownership of broadcast media from 49 to 74 per cent. Additional reforms were promised by the Finance Minister to reduce government spending and implement a more transparent, non-retroactive tax regime for investors. The timely and effective implementation of these reforms should support the medium to long term growth prospects of the Indian small caps for 2013."
