Indian companies reduced their foreign direct investment in August to $2.2 billion as overseas

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assets turned risky. The outflow was less than half of the $5.4 billion they invested in June and was even below the $2.6 billion they spent abroad in July.

Among the top investors abroad were GMR Holdings, Bharti Airtel and Indian Hotels, according to the outward FDI data released by the Reserve Bank of India on Thursday.

GMR group chief financial officer Subbarao Amarthaluru said, “We are making large investments overseas. The development of the Mali airport will require investment of $511 million, but this is a joint venture with Malaysian Airport Authority. Besides, we are also acquiring Indonesian coal assets that will cost us another $500 million. Indian companies will continue to shop overseas for assets.”

However, others forecast a lull. Abheek Barua, chief economist, HDFC Bank, said, “The average monthly outward FDI would settle around $1.5 billion to $2 billion as Indian companies, especially software companies, would continue to look at Asian regions like Vietnam, the Philippines and Hong Kong due to labour shortage. Pharma companies would continue to undertake small mergers and acquisitions of small foreign companies in the Netherlands and South Africa where valuations are reasonable.”

A senior foreign banker said, “Valuations in overseas destinations are still high despite the financial turmoil, so Indian companies are getting cautious about investing in overseas assets. If the valuations of assets had come down, Indian and Chinese companies would have bought all the assets in these destinations.”

GMR Holdings was the biggest investor abroad last month when it ploughed $233.2 million into construction of the Mali airport through its joint venture.

Bharti Airtel is one of the companies that regularly invest overseas to expand its telecom services. In August it invested $132.5 million in the communication sector in Mauritius, the Netherlands and Singapore.

Indian Hotels invested $94.5 million through its wholly-owned subsidiary Taj International Hotels in Hong Kong.

Most of the outward foreign direct investment is used to build factories, buy resources, build infrastructure and start financial services ventures. Most of the outward investments are made through wholly-owned subsidiaries and joint ventures of Indian companies.