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Charting Growth – The M&A way 

We are witnessing CEOs in India turning to M&As as a catalyst for growth and renewal as they pursue new paths to profitability and growth, adapt to market disruptions and reposition their businesses to succeed in the marketplace.

In the last few months India’s economic activity has seen a noticeable improvement, this is fuelled by some of the recent policy reforms announced by the Government and Indian businesses looking at expanding inorganically

The government’s policy push and the Reserve Bank of India’s (RBI’s) lower interest rate regime (which continues) has meant a higher manufacturing Purchasing Manager’s Index (PMI) and improved consumer sentiment. Secondly, policies around disinvestment of Public Sector Undertakings (PSU), increased FDI in defence and insurance sectors, and the roll out of PLI scheme for 13 sectors, has created a positive environment, wherein CEOs in India are confident on the growth prospects for their business, though tempered with caution. They realise that recovery and growth are on the horizon and are looking at implementing aggressive growth strategies on their road to recovery.

The results of the  KPMG 2021 India CEO Outlook -Towards a digitally driven and purpose-led recovery show that 35 per cent CEOs in India believe that organic methods such as innovation, R&D and capital investments will be crucial for realising their growth objectives over the next three years. At the same time, Mergers and Acquisitions’ (M&A) appetite of CEOs in the country, too has risen significantly with 55 per cent CEOs in India (up from 26 per cent in March 2021) stating that they are likely to undertake acquisitions which will have a significant impact on the overall organisation.

When the pandemic was at its peak during the second wave in India, we saw CEOs undertake debt reduction and liability restructuring. Now India Inc. is looking at fresh capex infusion either directly or via the M&A route. Some of the key trends include new market entry, capacity expansion, supply chain diversification, and backward or forward integration.

We are bound to see more and more such businesses and new-age firms in India, further their growth, in the coming years either by expanding or undertaking strategic transactional activity.

Forward looking firms are likely to invest in green energy to emerge as Environmental, Social and Governance (ESG) leaders and meet their climate goals and circular economy. While some of the sectors are likely to witness consolidation, others will take the expansion route. We have already seen some of these trends amongst Indian conglomerates and businesses especially in the pharma, chemicals, consumer led e-commerce and consumer goods, education, manufacturing sector and the renewable energy sector.

There exist ample opportunities across sectors in India wherein organisations can look at acquiring complementary businesses to integrate their supply chain, reduce dependency and add value to their existing products and services catalogue. Apart from building greenfield businesses, India Inc. can look at leveraging this time and opportunity to enter new markets for a holistic and balanced portfolio. Entering new markets mean, acquiring not just customers, but entire supply chains and distribution networks. There is a huge amount of scope for potential synergies in technology and IP knowledge exchange that will equip businesses for an accelerated future.

To sum up, M&As present a good opportunity for CEOs in India to realise their growth objectives to remain competitive and resilient in this increasingly complex world. The aim should not only be to accelerate one’s own business, but also contribute and propel the Indian economy in the direction towards realising its dream of becoming an INR five trillion economy in four years.

About the author: Bhavik Damodar, is Office Managing Partner, Mumbai and Partner Deal Advisory, KPMG in India

Download Full Report - KPMG India 2021 CEO Outlook

(Disclaimer: Views expressed in the article are personal)

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