Corporate mergers and acquisitions in India have declined sharply this year after a record-breaking 2018, as the country's slowing economy and election uncertainties weigh on risk sentiment for business leaders.
With less than two months to go, it is almost certain that India will experience the weakest year in a decade in terms of total number of announced deals. Only 459 deals have been made public so far this year, according to Dealogic figures, which is less than half the 996 deals struck in 2013, which itself is the second-lowest annual number amassed in the past 10 years.
Business leaders also seem more hesitant to close deals, with some deals put on hold. That is evidenced by the sharp decline in number of completed deals so far in 2019: 489 compared with at least 1,000 deals in each of the last 10 years.
These figures appear more worrying compared with those last year, where a record-breaking $71 billion-worth of deals were announced and $83.8 billion were completed. This includes Walmart’s $16 billion acquisition of Flipkart – India’s largest-ever inbound M&A – which was announced in May and swiftly completed three months later.
The largest corporate deal announced so far this year is Power Finance Corporation’s $2.1 billion buyout of Rural Electrification Corporation.
However, it was a government-instructed deal between two state-owned companies. The next biggest, and the only other billion-dollar corporate M&A deal announced so far this year, is Chinese travel giant Ctrip’s $1.1 billion acquisition of a 42% stake in India’s MakeMyTrip.
The weaker corporate activity is, to an extent, due to uncertainties surrounding India’s general election in April and May this year. Job creation, tax and investment were among the major concerns that kept business leaders away from doing deals before the election, some analysts believe.
"After a record year for Indian M&A, dealmakers paused a little in the first quarter of 2019, thanks to a subdued global M&A market,” Ajay Arora, an M&A partner with EY India, commented before the election began. “Besides, the uncertainty around general election results also appear to have added to the sub-par performance."
India’s bearish M&A sentiment is also a consequence of its slowing economic growth. The country’s second-quarter GDP grew at the slowest pace in six years amid weakness in both consumption and exports.
The world’s sixth-largest economy continues to face headwinds including rising oil prices, international trade tensions and fiscal deficits.
In its World Economic Outlook this month, the IMF slashed its Indian growth forecast for 2019 to 6.1% from the 7% it projected in July. But it still sees a rebound in 2020, albeit to a downwardly revised 7%.
Fitch Ratings is even more negative and expects growth to slow to 5.5% in the Indian fiscal year to March-end 2020, citing a credit squeeze.
“We remain constructive on Indian equities due to corporate tax cuts, monetary easing, privatisation plans and an expected resurgence in economic growth,” Deutsche Bank Wealth Management said in a note to clients this week.
In a report published in June, EY India said 66% of Indian executives expect to actively pursue M&A in the next 12 months, suggesting business leaders are more comfortable with dealmaking now that the general election has ended.