"Deal activity declined by 8.1 per cent as global uncertainties and domestic factors left an impact on Indian M&A in 2012. However, the momentum temporarily picked up in 3Q12 and expected to continue in 2013," Ernst & Young said in its report on M&A here.

The third quarter of the year witnessed a strong surge in the M&A activity and may be an indicator of the return of the market's appetite for deal making. This momentum in M&A is expected to continue in 2013, it said.

India's hunt for natural resources is expected to continue in the coming year. The Indian government is in the process of expediting the acquisition of oil, gas and coal assets abroad.

Furthermore, several state-owned and private players have unveiled huge capex plans and readied war chests worth billions of dollars for potential asset buys, it said.

E&Y said the Indian M&A activity in 2012 has not lived up to expectations. Global economic headwinds, such as uncertainties pertaining to the Eurozone crisis, slow recovery in the US and moderate growth rates in emerging economies have weighed down M&A activity in India.

Domestic factors, such as high interest rates, depreciation of the rupee and slow GDP growth further exacerbated the situation till Q3'12. India's M&A deal value for 2012 reached USD 31.4 billion, which is a slight decline from USD 36.6 billion in 2011. In terms of deal count, 2012 recorded a total of 809 deals, as compared to 880 deals in 2011.

Amit Khandelwal, Partner and National Director - Transaction Advisory Services, Ernst & Young, says, "2012 has been a tough year for Indian M&A. The deteriorating macro- economic environment and domestic headwinds have impacted the level of acquisition activity.

"However, the recent wave of reforms announced by the Government of India (GoI) has infused fresh life into the tough economic scenario. Considering the deal pipeline and the GoI's efforts to create investor-friendly policies, the overall picture of Indian M&A in 2013 is indeed compelling."

The report said that the cross-border deals were down in the first half, but are expected to bounce back in the second half. India clocked 345 cross-border deals, worth USD 18.4 billion, which accounted for 58.5 percent of the total deal value of 2012.

2012 recorded a total of 151 outbound deals, with an aggregate disclosed deal value of USD 11.9 billion. In 2012, the share of outbound deals in terms of value increased to 37.8 per cent of the total value of M&A, from 28.5 per cent a year ago.

High borrowing costs, weak rupee, cooling global commodity prices and apprehensions related to resource- nationalism made outbound acquisitions difficult. Therefore, the number of outbound deal concluded by players in the natural resources sector to acquire overseas assets went down in 2012, it said.

However, it still topped the M&A table.

The biggest outbound deals of the year were ONGC's twin acquisitions - purchase of 8.4 per cent stake in Kashagan oilfield in Kazakhstan for USD 5 billion, and the USD1-billion combined purchase of 2.72 per cent stake in Azeri-Chirag- Guneshli oilfield and 2.36 per cent stake in the

Baku-Tbilisi-Ceyhan pipeline, both located in Azerbaijan.

Technology and industrial products were the other prominent sectors recording outbound deal activity.

Some prominent inbound deals were Diageo PLC's acquisition of 53.4 per cent stake in United Spirits Ltd (USD 2 billion) and GlaxoSmithKline PLC raising its stake to 75 per cent from

43.16 per cent in its Indian subsidiary (USD 941.9 million).