Emerging Markets Roundup: India

ROUNDUP: INDIA

 

By Aaron Chaze

 

300_Regulars_EM-Roundup-rev_India

India's craving for luxury cars grows

Significant improvement in heavy industrial sectors drove up India's Index of Industrial Production (IIP) by nearly 11% year-on-year during October 2010, a significant step up from September's 4.4% year-on-year rise. The latest statistics released by the ministry of planning and statistics show that heavy manufacturing sectors, including automobiles (passenger cars, trucks and motorcycles), shipbuilding, power generator and power equipment manufacturing, drove growth. Overall output from the capital goods sector grew by a hefty 22% over October 2009. Electricity generation was up by 11% year-on-year. Other sectors, such as consumer electronics, also contributed to the jump, and overall growth in consumer goods was 9.6%. During the April to October period, IIP grew by 10.3%.


Even as momentum in manufacturing and industrial activity continues to build, a recent survey of Indian companies shows expectations are growing of a rise in overseas and domestic M&A activity. Grant Thornton's India Mergers & Acquisitions and Private Equity survey reports that 85% of companies surveyed have a positive outlook on strategic M&A for 2011. The key drivers of this momentum are strong fundamentals in their respective businesses, availability of cheap finance and appealing valuations of companies globally. It is expected that telecom companies will drive domestic M&A, while pharmaceuticals and biotech firms will drive cross-border M&A.


Though still small, the fastest rate of growth in the Indian automobile sector is seen in the luxury segment, with three German carmakers fighting for market share. According to the Society of Indian Automobile Manufacturers, BMW has seen its sales grow by 60% year-on-year in January to November to around 5,300 cars, while Mercedes Benz sales have grown by 75% to 5,100 cars. The third emerging player in the luxury segment is Audi, which reported 70% volume growth in the same period, to 2,800 cars. Mercedes has already doubled capacity to 10,000 cars and is investing close to $50 million to set up a paint shop. BMW had recently doubled capacity but is already running at near-full capacity.

 

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