Easy pick. Is it really?

At the recently concluded India Economic Summit in the capital, the mood was upbeat about the Indian growth story. Amidst the chatter of Indian CEOs and their foreign counterparts, some key challenges were also discussed. The rupee appreciation against the dollar and the weakening of the global economy were among the many issues discussed. However, the rupee rise was the one that surfaced between almost every handshake. But the downside of it was not the sole issue.

One of the biggest stories that emerged out of the summit (organised by CII and the World Economic Forum in New Delhi) was that India Inc is looking at the rupee rise as an opportunity to acquire assets abroad, which are available at a ?cheaper price?.

From Anand Mahindra to Adi Godrej to Kiran Majumdar Shaw, everyone is on a prowl for overseas acquisitions.

?Our acquisitions will be worth half a billion dollars,? says Adi Godrej, chairman, Godrej Industries. While Latin America, South Africa and China are the target zones for Godrej, Shaw is keen on the US, Europe and emerging markets. She reasons, ?With the dollar weakening against the rupee, it is an opportune time to get companies at a discount, which have become like low hanging fruits in the garden.? Anand Mahindra, VC & MD of Mahindra & Mahindra, couldn?t agree more. He says, ?Rupee’s rise against the dollar has cut down the cost of overseas acquisitions.?

With industry chamber Assocham estimating that India Inc would have saved to the tune of 6,500 crore ($1.66 billion) in 70 deals done overseas in the first six months of the current fiscal (having total value of $14 billion), there couldn?t be more truth in these honchos? words. While on the face of it, it looks like party time for the deal hungry corporate India, but there is more to the rally.

After a blockbuster first quarter, the deal activity in the second quarter has somewhat stagnated in both domestic and overseas deals. According to the figures by Grant Thornton, the first 10 months clocked outbound deals worth $31.70 billion. And September and October accounted for $0.91 billion out of it. The lack of big-ticket acquisitions like Tata-Corus and Hindalco-Novelis also one reason for the low numbers.

The credit crunch in the west and hardening of interest rates are some of the often quoted reasons. And this is why India Inc would do well to exercise some caution while selecting ?the fruits? to ensure they don?t turn out sour later.

Rohit Kapoor, executive director, KPMG, says, ?In the context of rupee rising, it is a good time for such deals.? In the past one year, the rupee has advanced by more than 10% against the dollar.

?However, currency fluctuations should not dictate strategic rationale. One never knows when the currency bounces back and a particular asset becomes weak,? adds Kapoor.

In the past, countries like Japan and Europe have witnessed similar activity when the yen and the euro strengthened against the dollar. However, analysts are of the view that even in the present scenario, which seems like the best time to strike a good deal, one should not throw caution to the winds. A strategic fit, cultural integration and the price are factors that should not be discounted at any cost.

Moreover, in the present scenario, funding could be an issue. Says Sanjeev Krishan, executive director, PwC, ?Financing is something that corporates should play carefully. They should be mindful of what is happening around the world.? With the slowdown in the US economy, credit is drying up and interest rates are hardening. Adds Krishan, ?In the short term, what may seem to be cheap might turn out to be an expensive affair later.?

With Indians going on a shopping spree abroad to up their global presence, the mid cap companies are majorly financing the acquisitions through their balance sheets. However, despite the fact that the world?s confidence in India has increased, big-ticket acquisitions need to look into the debt component more carefully today.

Apart from the credit part of it, market watchers advise companies to take a good look at the business models. Warns Partho Mukherjee, senior V-P, Treasury, Axis Bank, ?While affordability is definitely a factor, the viability of companies, especially, in the American and European markets should be looked at. As certain markets are expected to go into a recession, companies might have to relook at the business models and prospects of the entities that they have acquired.?