The Indian auto industry is in top gear. Deal volumes in the auto space have remained steady with 18 announced transactions in 2018 worth $500 million, says a report released jointly by consultancy firm Grant Thornton and Automotive Component Manufacturers Association (ACMA) of India, which represents the auto component industry.

The report talks about technology disruption and overseas expansion as the major drivers of the mergers and acquisitions landscape in the Indian automotive sector. “While the average disclosed deal size is $45 million, these deal volumes for 2018 have been boosted on the back of large buyout transactions by financial investors and overseas acquisitions by large incumbents in the Indian auto sector,” said the reportreleased on Tuesday.

Vishesh C. Chandiok, CEO, Grant Thornton India LLP, said, “Auto is amongst the first impacted sectors because of massive tech disruption, and the nearly 3x pricing premium in auto tech transactions compared to traditional auto deals represents this.” He added that all mid- to large-sized Indian auto companies should have an active inorganic growth strategy, including a plan to partner with such companies in and outside of India “if the industry is to achieve the AMP target of $200 billion by 2026”.

The report also said that while the deal volumes pertaining to mid-market players have been limited, there has been an increasing focus on exploring inorganic opportunities amongst this segment due to increasing cash reserves and reasonable valuations in the overseas markets.

“The Indian automobile industry has been opting for the inorganic route to balance investments to support current growth cycles and prepare for future global disruptions,” the report said. ‘Inorganic growth’ refers to growth of business and sales expansion by acquiring new businesses through mergers, acquisitions, and takeovers.

There has been an increasing government push on emission control (move from Bharat Stage IV to Bharat Stage VI), adoption of electric vehicles (through subsidies under the FAME scheme), and safety and security (with the ministry of road transport and highways making it mandatory to have an emergency button and a vehicle tracking system in all public transportation vehicles, according to the report.

It also recognises the Indian auto industry as one of the world’s largest, accounting for 7.1% of the country’s GDP. It is poised to become the fourth-largest manufacturer of automobiles globally by 2020 after China, the U.S., and Japan.

“The automotive industry across the world and in India is going through a wide range of disruptions. There is a dire need for the Indian auto component industry to stay relevant and accelerate investments in technology development and acquisitions,” said Nirmal Minda, president, ACMA of India.

With the auto tech transaction landscape still evolving in India, an increasing number of startups are emerging, targeting different segments of the auto tech value chain.

“While the bulk of investments have been in the ride sharing sector, with the likes of Ola and Uber, along with online market places like Cardekho, Droom, Car24, and CarTrade, there is also an increasing investment focus on electric vehicle manufacturing startups,” the report said.