The Indian Economy has been undergoing constant change in the past few years. With the growing interest of companies all across the globe to do business in India, the prospects of blooming Mergers and Acquisitions (M&A) seem high now. Recent market analysts’ reports claim that Indian market is going to expand exponentially over the next few years.
Following the predications, the first half of 2018 was relatively lucrative for Indian economy with many successful mergers and acquisitions. The Walmart’s $16 billion acquisition of online retailer Flipkart, the $2.5 billion buying of L&T Electricals by Schneider and Temasek along with the Teleperformance snapping up BPO firm Intelenet for around $1 billion approved the prognostication of bright year for Indian market.
The Indian government has a crucial role to play in increasing the number of M&A happening in India. In the past few years, endless changes have been made in corporate law and regulations to ease the process of doing business. Government has repeatedly worked on Tax laws and Foreign Exchange Management Act (FEMA) regulations to boost both inbound and outbound investments.
Political uncertainty is the biggest risk for the market as bad law and order situation and frequent clashes between government leads to negative effects on a country’s economy. With Lok Sabha elections scheduled to be held in May 2019, market analysts are concerned that if incumbent government does not come back to power in 2019, then it would gravely hurt the market valuation.
The results of the elections deeply influences the economy and market situations as a very traditional logic grounds the business of M&A, that is, confidence and stability in the political structure of the country escalates the chances of deal making. Therefore, merger and acquisition (M&A) rate is absolute when the market is stable only as it ensures availability of both opportunities and growth along with maximum returns.
Baker McKenzie assessed recent IPO trends amongst Indian companies and announced that transactions are likely to close in 2018. This shows that India remains one of the most active markets for IPOs globally and at present is set to strongly outperform 2017 this calendar year. But upcoming elections might disturb it as markets always work on speculation, news or anticipation of something positive or negative. The positive buzz around the government always helps in bringing back the interest of investors back into the Stock Market while the negative just degrades the situation.
Elections create uncertainty as there are high chances that government policies might change which would decrease the number of business transactions. The skepticism regarding the future government and ongoing political shocks might push back current large deals. This would probably affect corporate earning evaluation as colossal amount is spent on elections which further burden them with taxes. If looked from the perspective of a flourishing economy, these coming elections would be severely affecting the number of M&A in India.
