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A proposed increase in foreign direct investment (FDI) would benefit the M & A sector as existing foreign investors seek to increase their holdings in their Indian joint ventures.
"The first impact would be that foreign companies that have already invested in these sectors, such as insurance, would increase their investments. Insurance, for example, has long periods of gestation and profitability, and I do not think there will be a lot of merger and acquisition activity, "said Riaz Thigna, director of Grant Thornton Advisory. Activity Sector.
In her budget speech, the finance minister said the government would consider proposals for greater openness of FDI in the aviation, media (animation, visual effects, games and comics) sectors. and insurance. Local procurement standards would be relaxed for the retail sector of a single brand.
"With these proposals, there could be an increase in mergers and acquisitions activity in some sectors but not in all sectors where FDI has been proposed," added Thigna.
For the aviation sector, which is facing a storm, this proposal could help revive some of the companies such as the national carrier Air India by the disinvestment or the private carrier Jet Airways, in case a foreign bidder would enter .
Industry experts were of the opinion that it would be a bit late for Jet Airways, the carrier having already filed for bankruptcy. However, if things go fast – with policies and decisions in place within the next two to three months – that could change.
"We do not yet know the details, even though the government has announced that it will liberalize the aviation sector." Aviation needs capital and this could help a carrier raise money from the airline industry. a foreign airline and to open some avenues, "said Vivek Gupta, partner and national leader (M & A and Private Equity, Tax), said KPMG in India.
"Similarly in the media. In insurance intermediaries – brokers and third-party administrators – we could witness interesting deals, while in the single-brand retail business, easing local procurement standards will facilitate foreign investment, "added Gupta.
At present, FDI in insurance is capped at 49%, the media at 26% (information at 26% and non-information and entertainment liberalized at 100 %), 49% aviation and single-brand retail with legal sourcing standards.
"Increasing FDI limits in PSUs should help the Center achieve its disinvestment target," said Rajesh Thakkar, Partner / Tax, Transaction, Tax and Regulatory Services at BDO India.
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