Since the publication of our first report, "Navigating India: Lessons for Foreign Investors," in 2013, India has undergone a remarkable transformation. The country's population grew by 100 million. Fuelled by improved connectivity and digital infrastructure, the number of internet users has soared, with more than half of its citizens now connected to the internet— a significant increase from the mere 12 per cent recorded in 2013. India's GDP has more than doubled, rising from US$1.8 trillion in 2013 to US$3.9 trillion in 2024, underscoring the nation's robust growth trajectory. Per capita income has also improved, reaching US$2,700 in 2024 compared to US$1,400 in 2013.
The Indian government's ambitious programme of regulatory reforms, aimed at making the country an attractive option for international investors, is clearly bearing fruit. In the World Bank's 2020 "Ease of Doing Business" report, India rose to the 63rd position out of 190 countries, marking a significant improvement from its 134th place in 2013. In this compendium, we highlight business opportunities and discuss some of challenges India faces today.
One such challenge is the high-valuation multiples of Indian companies, which have historically dampened cross-border M&A. While these high-valuations present lucrative opportunities for businesses to monetise through listings, they also pose challenges in structuring deals, particularly those involving India-listed subsidiaries and combinations with non-Indian businesses. However, recent regulatory changes, such as permitting share swaps and foreign investors' growing acceptance of Indian securities, are paving the way for innovative deal structures.
India's commitment to achieving net-zero by 2070 is another key issue. The country is pressing ahead with legislative reforms and investment into energy transition on an unprecedented scale, with renewables at the heart of this drive. India has the potential to increase its renewable energy production vastly—whether in solar, wind, hydro, hydrogen or other forms of renewables—and it is making various incentives available to accelerate that process. Legislation and new schemes should make the country even more attractive to investors, and indeed the efforts are already paying off, with a significant number of large investments being committed in recent years.
Technology is also a growth sector. Several multibillion-dollar deals by companies such as Amazon and Apple emphasise the potential of the tech economy. Meanwhile, in infrastructure, the introduction of products such as infrastructure investment trusts and real estate investment trusts make investment by foreign companies more attractive
However successful an investment, there will come a time to exit. In this issue, we examine two ways of exiting Indian investments: through general partner-led secondary transactions and through the public market. Those wishing to exit must plan ahead and put the necessary protections into their documentation at an early stage to avoid potential pitfalls down the track.
India has also made significant strides in reforming its alternative dispute resolution framework, aiming to position itself as a global hub for international arbitration. The 2021 Mediation Bill is another progressive step in making commercial disputes easier to handle, and the supportive stance of Indian courts has amplified positive effects of the legislative reforms.
Investing in India has never been more attractive for foreign investors, and we hope you will find this issue an insightful read.
Against a challenging macro-economic environment worldwide, India has proven resilient and demonstrated its huge potential for growth. With an increasingly favourable regulatory regime and greater avenues of investment, India’s attractiveness as a global market for investors will only continue.
India stands out globally as a market with strong growth in IPO volume, thanks to its dynamic regulatory framework, robust domestic capital market and a large retail investor base. IPOs are also gaining popularity among foreign investors as one of the available exit options from their investments.
Foreign investors in India have historically faced numerous challenges, from high-valuation multiples to regulatory limitations, but evolving market conditions are cause for hope.
The Indian government is pressing ahead with legislative reforms and investments on an unprecedented scale in the energy transition.
The market for private equity-led secondary transactions is growing, and India is steadily catching up with the global trend in embracing these innovative exit strategies.
In the past decade, India has made significant strides in reforming its alternative dispute resolution (ADR) framework, aiming to position itself as a global hub for international arbitration. The supportive stance of Indian courts towards arbitration has amplified the positive effects of these reforms.
Foreign investors in India have historically faced numerous challenges, from high-valuation multiples to regulatory limitations, but evolving market conditions are cause for hope.
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In January 2024, India overtook Hong Kong as the world's fourth-largest stock market
Indian companies have attracted significant attention for their high-valuation multiples, often surpassing those seen in other global markets for companies in the same sector. This has led to a surge in businesses seeking listings in India. The IPO deluge has included Indian subsidiaries of global businesses, venture capital-backed Indian startups such as FirstCry and Ola Electric, and private equity-backed businesses seeking exit for their financial sponsors, including Aadhar Housing Finance, Premier Energies and RR Kabel.
The listing of Indian subsidiaries such as Hyundai Motors India is a new phenomenon, since historically global businesses often made considerable efforts to take their subsidiaries private, as seen with Sandvik, Cadbury and Reckitt. At the time, these companies were forced to list in India due to a regulatory requirement that required foreign companies to divest stakes in their Indian subsidiaries to Indian shareholders. In many cases, Indian businesses that had set up or made considerable efforts to domicile their holding companies outside the country are now re-domiciling in India to benefit from the favourable market conditions.
However, this high-valuation trend has brought several unique challenges in the realm of M&A involving Indian companies, while also paving the way for innovative deal structures and regulatory changes that could enhance cross-border dealmaking.
The high-valuation multiples of Indian companies are a testament to the country’s robust economic growth, favourable demographics, digital transformation and supportive government policies. In late January 2024, India overtook Hong Kong to emerge as the fourth-largest stock market, based on market value. However, while these high-valuations offer lucrative opportunities for businesses to monetise through listings, they also pose significant challenges in the M&A landscape.
Monetising high multiples for acquisitions outside India: Indian companies have struggled to leverage their high-valuation multiples as acquisition currency in international markets. The disparity in valuation expectations and regulatory hurdles—where it was unclear for a long time whether share swaps required regulatory approval and, if so, whether such regulatory approvals would be easily forthcoming—have limited Indian companies’ ability to use their listed securities effectively in cross-border M&A deals.
Further, the lack of depth and trading volumes of Indian securities and concerns around the regulatory regime for foreign investors meant that foreign investors were reluctant to accept Indian securities as consideration. Previous attempts by Indian regulators and companies, particularly in the technology sector, to create international securities through ADR/GDR programmes as acquisition currency failed miserably due to low trading volumes.
Indian regulations now allow the swap of Indian shares for foreign securities, significantly easing the process of structuring cross-border deals
Despite these challenges, recent regulatory changes and evolving market dynamics offer promising avenues for cross-border M&A involving Indian companies.
Acceptance of Indian securities by international players: There is a growing willingness among international parties, such as private equity firms and strategic investors, to accept Indian securities in cross-border M&A transactions. This is because many of the global private equity, venture capital, pension and sovereign wealth funds have exposure to Indian markets through other investments in India. It is also due to the significant expansion of the free float—which reached US$1.1 trillion market cap in September 2024, out of US$2 trillion in total—and trading volumes on the Indian stock market. This gives international parties accepting Indian securities exposure to the continued increase in those companies’ valuations, as well as the comfort of knowing they can very easily monetise their holdings when they exit.
This acceptance opens up new possibilities for Indian companies to use their high-value securities as currency in international acquisitions, thereby enhancing their global footprint.
These regulatory changes and market developments set the stage for interesting deal structures that could invigorate cross-border M&A involving Indian companies. A few potential deal structures include:
The high-valuation multiples of Indian companies present both opportunities and challenges in the M&A landscape. While regulatory and market barriers have complicated cross-border transactions, recent developments offer the potential for more dynamic and innovative deal structures. As Indian regulations continue to evolve and international investors become more receptive to Indian securities, the prospects for cross-border M&A involving Indian companies appear increasingly promising. This could lead to a significant boost in global dealmaking activity, benefitting both Indian and international markets.
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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
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View full image: PE ratios of India-listed companies – Nifty Indices (PDF)
