India’s long-term growth agenda can put away recession fears

Another economic recession is yet to be officially confirmed or declared either in the US or any other country for that matter. But the US economic data is certainly pointing towards a slowdown. In contrast, China has seen an accelerated reopening and that seems to have boosted the commodity market. As regards India, domestic economic activities are expected to remain resilient, driven by sustained focus on capital and infrastructure spending in the Union Budget 2023-24. Amidst all these developments and outlook, there remain macroeconomic uncertainties in the minds of investors and as a result the investor community seems to be treading (or preferring to trade) cautiously. These uncertainties seem to have taken its toll on the overall deal landscape and mergers and acquisitions (M&A) space.

India Inc recorded only 89 deals, valued at $1.8 billion, a significant 54 per cent drop in volumes and a significant drop of 60 per cent in values compared to February 2022. YTD 2023 recorded 234 deals valued at $4.5 billion, reflecting a sharp fall of 46 per cent in overall volumes and a sharper fall of 58 per cent in values over YTD 2022. M&A deal activity also witnessed a significant downtrend both in terms of deal volumes by 48 per cent and values by 47 per cent, clocking 24 deals at $755 million, compared to February 2022. This incidentally marked the second-lowest deal volumes and lowest values recorded since 2014. That’s what Grant Thornton Bharat’s Dealtracker February 2023 report suggested. The PE investment trend also witnessed a drop both in terms of deal values and volumes over February 2022, recording only 65 deals worth $one billion. YTD 2023 recorded one IPO with an issue size of $eight million, compared to three IPO issues, raising $one billion in YTD 2022. QIP, on the other hand, saw muted activity compared to two issues raising $264 million over YTD 2022. These can also be attributed to volatile market.

Quite significantly, while M&A values were dominated by cross-border deals, particularly outbound transactions, on the back of one big-ticket transaction of $578 million, the volumes continued to be dominated by domestic consolidations, which accounted for 67 per cent of transactions. The start-up sector led the volumes with 25 per cent of the deals, driven by the fintech segment, which dominated in terms of both volumes as well as values. The pharma, healthcare and biotech and IT and ITeS sectors followed the start-up sector with 17 per cent and 13 per cent of deals, respectively. The automotive sector drove the values on the back of SAS Autosystemtechnik’s acquisition by Motherson International for $578 million. This transaction alone was responsible for 77 per cent of the total M&A values, making it the fifth-largest deal in this sector in the last 12 years.

Interestingly, experts are of the view that the subdued deal activities notwithstanding, the Indian market is still considered to provide good opportunities for deals/investments. And the good thing is that the managers of Indian economy have so far prioritised long-term growth agenda, despite this being pre-election year.