The Hindu Business Line : Private equity firms make a beeline for Indian market

WITH business confidence on a high and a list of successful exits by private investors, an increasing number of private equity firms, led by foreign firms, are making a beeline for the Indian market and the numbers are showing it.

According to highly informed industry sources, private equity firms have put in more than $130 million in Indian firms in the first three months of the year alone. Out of this, at least 10 deals were of more than $8 million.

Similarly, estimates show that in calendar year 2004, private equity players struck more than $1.7 billion worth of deals in India, with the high profile $500-million deal between GE Capital and GAP/Oak Hill Capital driving the numbers.

"Private equity firms are generally looking at opportunities to develop businesses with the intention of capital gains. Emerging markets in general (eg. BRICs countries) offer immense opportunity to rationalise, globalise, scale and professionalise businesses for value creation.

"Lately, we have seen large US and European players such as Blackstone, Terra Firma, and 3i among others come into the Indian market. The present surge in investment is only a further indicator of confidence of the success of private investments in India Inc," says Mr Abizer Diwanji, Executive Director, KPMG.

The investments are being made across sectors with banking/financial services, information technology/IT services and pharmaceuticals seeing the most interest.

Analysts point out that the textile sector (where companies are ramping up capacities to meet global demand) and the auto component sector (in which several companies have made or are in the process of making overseas acquisitions) are likely to see increased interest by private equity players in the coming months.

However, even as about 100-odd foreign private equity firms are operating in India, it is difficult to estimate how much investments have been made till now.

Reasons Mr Diwanji, "There are primarily three ways that foreign private equity firms invest in India — directly through investments in various companies by acquiring majority stake (also the most common and most visible way), investments into Indian private equity funds (eg. CalPERS in GW Capital) and investments made through the FII route through public market offerings (eg Temasek in ICICI Bank).

Further, a lot of private equity firms do not really operate through Indian advisors but operate directly from overseas."

But the investments are surely being driven by the number of successful exits from investments by private equity firms in the past.

Warburg's exit in Bharti is an example of investing in nascent sectors (in the early stages of opening up), helping to scale up operations and then exiting through the market or strategic sales.

Similarly, another profitable exit has been Biocon where GW Captial was the foreign private equity firm and even Actis' exit from UTI Bank was healthy.

"This is one of the areas where we certainly score over China. India has provided far too many successful exits for various private equity players. This is still a pipe dream in China. Exits in the local and international markets only go to prove the soundness of the India story and also renew faith in the growth potential", Mr Abizer said.

Going forward, the growth in investments will only get stronger with several high profile announcements in recent months.

These include Blackstone Group's announcement that it has allocated $1 billion for investments in India.

Other equity firms such as 3i, Carlyle, and Actis among others too are reported to have allocated large amounts for investments in domestic firms.

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