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    FDI outflows matches FPIs’ in volatility

    Synopsis

    The FDI outflow of $16.4 billion is the highest-ever in a year, even though the fiscal close is four months away from November.

    ET Bureau
    MUMBAI: While foreign direct investment (FDI) flowing into India hit a high of $43 billion in the April-November period, a record $16.4 billion went the other way amid private equity exits and other divestments.

    In fact, $6 billion rushed out in a mere two months — October and November — according to the Reserve Bank of India’s latest monthly bulletin. That almost matches foreign portfolio investment in terms of volatility — FPIs pulled out a net $7.3 billion during those two months.

    While this could be partly attributed to PE investors exiting through initial public offers (IPOs) and other avenues, some of it could be due to repatriation of profits. Divestments and strategic sales too could have contributed to a one-time spike in outflows, experts said.

    The FDI outflow of $16.4 billion is the highest-ever in a year, even though the fiscal close is four months away from November. Outflows in the same period last year amounted to $6.5 billion.

    “The very large outflow of dividends and royalties from FDI invested is due to many reasons, (among them) being the larger returns on large gross inflows in previous years,” said Saugata Bhattacharya, chief economist Axis Bank. “However, one major source (of outflows) is likely to have been PE, VC (private equity, venture capital) exits following IPOs of many startups due to rich valuations this year.”

    In the April-November period, PE exits were valued at $4.8 billion, according to industry data tracking firm Venture Intelligence. “Often there is a lag between actual exists and repatriation from the country by the investor which may result in a discrepancy between the RBI and industry numbers,” said Arun Natarajan, CEO of the firm.

    One of the largest private equity exits of the decade was concluded in the April-November period when Japan’s Yokohama completed its buyout of KKR-backed tyre manufacturer Alliance Tire Group (ATG), according to a report by consulting firm KPMG. The $1.2 billion deal is said to have been sealed in July last year.

    Besides, strategic sales too could have contributed to sales and investment pullouts. According to PwC, there were PE exits alone worth $1.4 billion during the July-September quarter. It is likely that actual outflows have happened in the subsequent months. The year saw a number of multilateral and bilateral treaties to streamline trade and economic relations.

    Certain clauses are likely to have impacted inflows. “For instance, the amendment of tax treaties with some countries like Mauritius which ended tax benefits on certain investments could have resulted in outflows,” said an economist requesting anonymity.


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    ( Originally published on Jan 24, 2017 )
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