Gem & Jewelry Sector Key Contributor to Indian Overseas Investments

Indian companies invested a record $15 billion in overseas deals during the 2006-2007 fiscal year, to which the gem and jewelry sector was a significant contributor, according to a report by the Federation of Indian Chambers of Commerce and Industry (FICCI) and Ernst & Young.

The trend of increasing mergers and acquisitions is expected to grow rapidly, and total outbound investment deals which stood at $4.3 billion in 2005-2006, are expected to exceed $35 billion in 2007-2008.

The report, entitled “Direct Investments in the United States of America by Indian Enterprises,” notes that in 46 deals, over $2 billion was invested in the U.S. alone. Overall, the gem and jewelry sector was the third largest contributor to Indian overseas deals, accounting for 7 percent of the total investments by Indian companies in the U.S.

Acquisitions by small and medium enterprises in this period were also noted in the report. Amit Mitra, Secretary General of FICCI, said that greater activity will be witnessed in the small and medium enterprise segment in the next few years.

According to the study, increased profitability, cost advantage, corporate India’s increased willingness to take on risk, a liberal governmental regulatory stance and domestic companies’ exposure to U.S. companies were some of the general factors driving this trend.

In the gem and jewelry sector, the report notes that the move to enter the retail markets, especially in the U.S., was driven by the higher margins in the organized retail markets, and that “acquisitions and mergers would be the preferred route….due to the higher costs involved in setting up operations.”

Among the significant deals in the sector during 2006-07 were the acquisition of Samuels Jewelers Inc and Tri-Star Worldwide LLC by Gitanjali Gems and the deal between Tara Jewels and Fabrikant Lear International.

The current fiscal year has already seen the acquisition by Shrenuj & Co of jewelry distributor Simon Golub & Sons Inc.