Indian outward FDI flows to the U.S. have been consistent and a bilateral investment treaty could help foster further investment opportunities, a report released by FICCI-EY said.
Time is also opportune for U.S. companies to scale up their engagement with Indian businesses, leveraging the economic multipliers that exist on both sides.
This has been highlighted in the latest edition of the FICCI-EY report on 'Direct Investments in the U.S. by Indian Enterprises'.
The report -- which is fifth in a series initiated in 2006 -- seeks to unravel the lesser known story of Indian FDI into the U.S.
It's release comes during the ongoing visit of the U.S. President Barack Obama to India.
The report highlighted that Indian investments in the U.S. have remained strong during October 2012 to December 2014.
Of the total 268 outbound acquisitions made by Indian companies between October 2012 and December 2014, as many as 71 were made in the U.S., with a cumulative disclosed value of $ 2.9 billion, despite global and domestic economic turbulence.
The actual investment in the U.S. would be even greater as the transaction value is available for only 22 transactions out of total 71 deals.
The U.S. share in India's total outward FDI has increased to 7.8 per cent in 2013-14 from 5.5 per cent in 2008-09.
KEY CHALLENGES
Financing outbound M&A has been a key challenge for Indian corporate entities, says the report.
The outbound deals of Indian companies in the U.S. are predominantly debt financed, with cash being a popular mode of payment.
The trend is probably an extension of India Inc's traditional preference for cash transactions in the domestic M&A space.
Another reason for conducting cash deals could be that a large number of Indian companies making acquisitions in the U.S. find it difficult to get sellers who are willing to accept stocks, especially in view of volatile nature of Indian stock markets.
Also, the depreciation of the Indian rupee against the U.S. dollar has proved to be a significant headwind.
Acquiring companies in the U.S. has become more expensive than ever before for Indian companies.
OUTLOOK
Going forward, the coal, steel and oil and gas sectors are likely to drive deal values in the near future, the report said.
On the other hand, pharmaceuticals and healthcare are likely to drive deal volumes, riding on the upcoming generic opportunities and the size of the U.S. market.
Also, the technology sector is expected to maintain the current momentum and contribute heavily to deal volumes.
Traditional segments such as business process outsourcing (BPO) and upcoming segments such as data analytics and cloud computing are likely to be under focus.