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Our Bureau

New Delhi , Sept 28

The country's private equity market, which attracted $2.2 billion in investment capital last year, is set to reach at least $7 billion in 2010, a new study has found. Private equity investment in India was about $3.5 billion in the first half of the current year.

The US-based global business consulting firm Bain & Company said in its study `India Private Equity Outlook' that a growing consumer class in the country and increasingly differentiated skill-sets are two major economic forces driving the estimated surge in the size of the Indian private equity market.

However, PE investments in the country through 2010 are expected to remain focussed on traditionally smaller growth-capital investments.

Buyouts difficult

Transformational mega-deal buyouts, similar to those in the US and other developed markets, are far more difficult to execute here given Government limits on access to foreign leverage and the reluctance of family-controlled businesses to cede control, the firm said.

However, recent signs of a change in attitude could signal the emergence of a nascent buyouts market, the report added.

"We have observed early signs that the traditionally strong opposition to change in control issues may be starting to diminish," Bain & Company's Private Equity Practice Head in India and author of the report, Mr Sri Rajan said. "Though it's too early to state categorically that a sea change is under way, removal of this roadblock could pave the way for the emergence of a private equity buyouts market in India," he added.

Maturity indicator

The study further stated that private equity ownership clearly reflects the maturity of a particular Indian business sector. Percentage ownership was greatest in business processing outsourcing at 40 per cent, followed by 23 per cent each in textiles and media and entertainment.

Relatively less private equity ownership was seen from 2000 to 2005 in emerging sectors such as financial services (17 per cent) and healthcare (15 per cent).

Limited availability of secondary market data, high asset valuations and Government restrictions are among the significant challenges for PE players in India.

"Private equity investors in India should follow a few simple rules," Mr Rajan said. "Target the beneficiaries of a growing consumer class, forge key local relationships, leverage global networks, and plot a flexible course to exits."

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