EMERGING TRENDS OF INVESTING AND FINANCING ACTIVITIES IN

INDIAN COMPANIES

Rajesh Y

Sashikanth

Introduction

INDIA

7th Largest

2nd Most Populous

12th Largest Economyand

4th Largest in terms of PPP

79,000Companies

1,400Govt. owned

17,000Publicly listed

Rest arePrivate owned

What is Investing?

• The act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit .

• At times the goal of the investment is for producing future cash flows, while at others it may be for purposes of gaining access to more assets by establishing control or influence over the operation of a second company (the investee).

Economical Definition:

Production per unit time of goods which are not consumed but are to be used for future production.

Example: Tangibles (such as building a railroad or factory) and intangibles (such as a year of schooling or on-the-job training).

Financial Definition:

Investment=Cost of Capital

Example: shares, other equity investment, securities and

bonds or fairly liquid real assets, such as gold, real estate, or collectibles

Business Management Definition:

• Investment can be for producing future cash flows, or for purposes of gaining access to more assets by establishing control or influence over the operation of a second company.

• These assets may be physical (such as buildings or machinery), intangible (such as patents, software, goodwill) or financial assets, these are often marketable securities such as a company stock (an equity investment) or bonds (a debt investment).

Trends in investing activities

Acquisitions: • In 2007, foreign acquisitions have amounted to more

than $39 billion, a fivefold jump from last year. A substantial portion of investments takes place through special purpose vehicles (SPVs) set up for the purpose abroad.

• Reliance Industries (RIL), India's most valuable firm in terms of market capitalization and owner of world's third largest refinery, will be setting aside close to $15 billion for making "world-scale" acquisitions in the energy sector besides investing more than $12 billion for development of gas exploration off the country's east coast.

Infrastructure: • Nearly 81 percent of the total investment ($104.8 billion)

by Indian companies till third quarter of financial year 2008 has been used for developing core, physical and service infrastructure.

• Steel with $31 billion remained the single major source of investment generation. The other industries which attracted substantial capital expenditure included oil ($16 billion), power ($13 billion), telecom ($8.2 billion), real estate ($6.2 billion) and cement ($4.8 billion).

Overseas Investment trends (FDI outflows):

• Overseas acquisitions are funded through a variety of

sources such as withdrawal foreign exchange in India, capitalization of exports, balances held in EEFC accounts, share swaps, ECBs/FCCBs, ADRs/GDRs, etc.

• $ 4.5 billion during 2005-06 to $ 11 billion during 2006-07 and around $15 billion in 2007-08 billion - surpassing foreign direct investment (FDI) inflows in the country.

• Driven mainly by India's booming manufacturing sector. Sectors such as Parma and Automobiles will give a major thrust to the FDI outflow, though IT will continue to dominate the scene.

• The number of outbound Mergers and Acquisition deals has increased sharply over the past six years from about 37 in 2001 to more than 170 in 2006.

• The Indian conglomerates that are upbeat on inorganic growth are the Tata group, Bharat Forge, Ranbaxy, ONGC, Infosys and Wipro.

• The Apollo Group of Hospitals strike cross border deals to expand its global footprint through strategic partners with some of the local hospital chains overseas while pursuing mergers and acquisitions in the US and Europe.

• Nicholas Piramal India Ltd plans to invest $50 million over a three-year period in its plants in the UK and India.

• In the energy sector, India's Suzlon Energy Limited, the world's fifth largest wind turbine manufacturer, has offered $1.3 billion for Germany's REpower.

Socially responsible investing

• Describes an investment strategy which seeks to maximize both financial return and social good.

• Socially responsible investors favor corporate best practices that promote environmental stewardship, consumer protection, human rights, and diversity.

• Some (but not all) avoid businesses involved in alcohol, tobacco, gambling, weapons, the military, and/or abortion.

Trends in Financial Markets

• Internal accruals

• Equity and equity based funding

• Domestic debt

• Foreign Institutional Investments

• Overseas borrowings

• Initial Public Offerings (IPO)

References

• Investment Strategy for India … Investment Commission Report (February 2006)

• http://dipp.nic.in/invindia/invind.htm#6• Wikipedia, the free encyclopedia• DANAT INDIA RIA COMPANY Investment Overview

(Final report)

Emirates Islamic Bank Projected Project Return on Real Estate Investment in India