The deal street involving inbound, outbound and domestic deals grew by 11.3 per cent in 2015-16 at USD 39.56 billion over the previous year and the M&A activity will remain subdued due to the currency and global economic volatility, says a report.
With lots of low-hanging fruits available in the market with rising distress among corporates, the M&A street was dominated by domestic deals at USD 17.87 billion in 2015-16, which was massively down from USD 20.16 billion in 2014-15, a report by domestic investment bank Equirus Capital said.
Inbound deals came in second with USD 17.72 billion, up from USD 12.57 billion during the period, while outbound deals jumped 68 per cent to USD 3.96 billion from USD 2.36 billion.
But the analysts at the city-based i-bank warned that the momentum cannot be sustained as the rupee has depreciated significantly in comparison to the currencies of key regions where domestic players have been historically concentrating their deal activities.
"We feel that the volatile performance of the rupee against the destination-country currencies has led to lower risk appetite among the domestic players looking at global expansion," the report said.
While historically consumer, communication and financials were leading the inbound deal activity, accounting for around 73 per cent of deals, the momentum is fast shifting from these to technology and energy sectors which have almost doubled during the period, especially on the domestic front.
"We expect the momentum to continue, as these inherently play on the rich demographic dividend of the country," the report said, adding in-bound activity to increase in the cyclicals, as the mounting stress in these sectors is expected to ease out in medium-run, while blue-chip assets in these sectors are currently being valued at competitive prices.
Historically, Britain, the US, Japan, Russia and Singapore were the top five acquirers of domestic assets. But, this is changing fast as the US, on the back of a stronger dollar, has been aggressively expanding, while Britain, the largest acquirer for many years has seen a 24 per cent decline, primarily due to currency volatility. England accounted for just 5 per cent of the announced deals in 2015-16.
Significantly, Japan has been a conservative acquirer here, with announced deal value growing at a low 5 per cent since between 2012-13 and 2015-16.
"We see a bleak outlook for cross-border deal activity as sources of in-bound capital have dried-up and the country is expected to become increasingly dependent on even fewer sources of capital. But outbound deals dominated by a few and this coupled with a volatile economic and exchange rate makes for an exceptionally weak story for the country's M&A market in FY17," concludes the report.
