Gross FDI (Foreign Direct Investment) inflows have more than doubled to $18.3 billion in April-May compared to the same period in 2020 when it was $8.5 billion, according to Reserve Bank of India (RBI) data.
But nearly a third of the FDI inflows—$6.3 billion—are due to acquisition of shares through secondary transactions rather than investment, which help amass durable foreign exchange reserves, The Economic Times reported.
An analysis of RBI’s foreign investment data shows that between July 2020 and May 2021, inflows through acquisition have been half a billion-dollar or a little more in eight months. But in May alone, the inflows were to the tune of around $6 billion.
Foreign portfolio investors pulled out $1.5 billion from India and dollar demand picked up due to rising imports in April-May.
In India, a foreign investor can buy stocks of an unlisted firm via the FDI route.
Acquisition of shares, unlike portfolio investments, is not stock exchange deals. They could be investments in private equity, pre-IPO equity or over 10% of a company’s diluted equity through M&A deals.
Market analysts attributed the spike in May to investment preparation for some big-ticket initial public offerings (IPOs) like those planned for fintech firm Paytm or food delivery services app Zomato during the year.
According to Rahul Bajoria, chief India economist at Barclays Capital, as quoted by Economic Times, it is a continuation from last year with the start-ups looking to raise capital, either publicly or privately.
Meanwhile, a recent United Nations Conference on Trade and Development noted that India has emerged as a stable destination for FDI and was even among the top five nations to attract such investments in the pandemic year.
Paytm: In what is being touted as the biggest Indian IPO in at least a decade, Paytm last week filed a draft prospectus with the Securities and Exchange Board of India to raise Rs 16,600 crore ($2.2 billion)
The Paytm IPO will comprise equally of a fresh issue worth Rs 8,300 crore ($1.1 billion) and secondary issue that is an offer for sale of the same size of the offering, the Noida-based fintech firm has told the Sebi.
Zomato: India’s largest online food delivery company, Zomato, which has over 50% market share, is also set to launch its IPO this year.
LIC: One of the most awaited IPOs of the year is that of LIC whose 10% stake sale in the capital markets is touted to be the biggest in India. The government plans to raise around Rs 1 lakh crore through the IPO, expected after October. The IPO was postponed last year due to the Covid-19 pandemic.
Grofers: Softbank-backed Grofers is likely to launch an IPO by the end of this year.
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