India Inc. Merger & Acquisition Activity Remained Strong in October, Demonetization Can Stymie Short-term Growth

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India’s demonetization policy has made global news, with proponents hailing it as a brave move while opponents calling it state brutality that has led to a number of deaths. India Inc. has been supportive of the government’s move, however, it has had to suffer massive losses, as the entire supply chain makes the transition to a cashless economy. In the midst of the entire clamor, there’s finally some good news that can lift the spirits up – according to advisory firm Grant Thornton, the merger and acquisition activity in the country witnessed nearly US$4.5 billion worth of transactions in the month of October. This brought the total transaction activity in the merger and activity segment to over US$ 32 billion in 2016 (till October).

One of the most significant M&As that pushed the total transaction value was the merger of Makemytrip and Ibibo. This deal contributed over 40% to the total transaction value in October.

While this news will give a boost to the overall investor confidence, it is worthwhile to remember that the data is until October, while the demonetization was announced on November 8th. While most experts are of the opinion that demonetization will have a positive long-term impact on the Indian economy in the long-run, it will have a negative impact in the short-term.

According to a report by Motilal Oswal Securities, demonetization has severely affected household consumption and this will have a massive impact on the economy, especially on companies operating in the FMCG and retail sector. The slowdown is also visible in the automotive segment as consumer enquiries hacve dropped by nearly 50% as cash crunch severely affects the common man.

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Analysts are of the opinion that the slowdown in the real estate is a temporary one as prospective buyers are hoping that there will be price correction, leading to a decline of about 10% in the prices. It is widely believed that a significant portion of India’s black money gets invested in the real estate sector, leading to an artificial increase in prices. The average India remains locked out of the real estate sector, owing to the steep prices, and the demonetization move can work to alleviate this.



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