The Hindu Business Line : Pvt equity firms bullish on financial services sector

With financial services firms in the country yet to attain the size and scale enjoyed by their western counterparts, private equity firms seem to have woken up to the potential in the sector. So much so that this year the sector seems close on the heels to even overtaking the IT/ITeS sector in terms of the sheer number of deals.

Sample this. The year so far has seen as many as 16 investments by private equity or venture capital firms in the financial services sector. This almost matches the 17-18 deals seen in the IT/ITeS sector, which has already been overtaken this year by the over 20 deals in the manufacturing sector.

Deals made

In fact, one of the biggest deals this year has been Farallon Capital's $143 million investment in Indiabulls Financial Services. Other firms already invested in Indiabulls Financial include Fidelity and Goldman Sachs.

Industry sources point out that the two most recent deals in the sector have been an investment of $27 million in Magma Leasing, a retail financing firm, by Aeneas and ICICI Ventures' purchase of 19 per cent stake in NIIT Finance Banking and Insurance Training, which is NIIT's new training venture for the banking and insurance sector.

Meanwhile, the bull-run in the market earlier this year also led to a considerable rise in interest in brokerage firms, with Motilal Oswal Securities, Sharekhan and India Infoline receiving private equity investment.

While General Atlantic invested $31 million in Sharekhan, the online broking subsidiary of SSKI, Bessemer and New Vernon purchased a 9.29 per cent stake for $28.10 million in Motilal Oswal.

Late last year broking firm Edelweiss too had received private equity investment.

Incidentally, market watchers point out that Motilal Oswal, Sharekhan and Edelweiss are planning an IPO in the next year.

Big potential seen

Analysts further add that the interest in the financial services sector is here to stay, with both new and existing private equity firms in the country evincing bullishness about its potential. "Despite the recent slump in the stock market, the interest in the sector will remain as there is huge potential for growth. In the United States, for instance, there are many securities firms among the top 100 of the Fortune 500 list. The scenario may not be very different in India in the next few years," an industry official said.

It comes as no surprise then that even new entrants such as Matrix Partners and JM Financial India Fund (which is sponsored by the JM Financial Group and the US based Old Lane Partners) have shown interest in investing in the financial services sector.

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