A “heightened degree of policy uncertainty and regulatory interference” is leading to a shift in private equity (PE) investments towards sectors where the Government has minimal involvement, say PE players.

Sectors such as FMCG/retail, food services, agri goods, healthcare, IT and education have been getting increased attention this year from PE investors.

This has come at the cost of core sectors such as power, infrastructure (aviation, ports and roads) and telecom, industry sources said. Amit Chander, Partner at Baring PE Partners, said, “In the last few months, deal intensity is more in sectors where regulation has less of a role. Policy paralysis is hurting. The benefit in sectors such as FMCG is that firms have a free hand in pricing and marketing.”

Baring, one of the oldest PE players in India, is in talks with 3-4 companies in the agricultural sectors such as seed and chemical suppliers. It has raised about $560 million in its third fund.

The education sector is also throwing up new opportunities, with global universities looking to enter India and classroom technology upgrades. Meanwhile, in the IT sector, there are many small technology firms such as app makers for Android and Apple iOS platforms, who need growth capital.

“Investors are showing more interest wherever the Government does not decide pricing and one is not dependent on receiving State funds such as in the PPP model,” Harish HV, Partner at Grant Thornton India, said.

However, investment may not have completely slowed down in sectors such as infrastructure on the prospect of high returns.

Darius Pandole, Partner at New Silk Route PE, said the phenomenon of investors shying away from sectors with regulatory risks has been visible for about two years. Sectors which have more “free market” operations attract higher PE funding.

“There will be some who are willing to take the risk, because the demand and supply gap is great across the entire infrastructure sector. Once you set up a power plant, selling power is not the issue,” he said.

> roudra.b@thehindu.co.in

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