Cautious PE firms wait for resurgence of primary market

Jayanta Mallick Kolkata | Updated on June 05, 2014 Published on June 05, 2014

Though India-dedicated funds have shrunk, there is enough capital, especially from Asia-Pacific and global funds, which might come to India

Private equity firms continue to be cautious about return expectations and exit from old investments worth $6.8 billion as well as fresh investments in India. A large section of investors is looking forward to resurgence of the primary market for better exit opportunities.

Only $3 billion of the $12.9 billion invested in 2007 could exit in 2013. Investments worth $4.4 billion of the $9.2 billion 2008 vintage also found exit route last year. However, findings of an Ernst & Young’s global survey among PE firms indicate that India is considered the top investment destination now. Some 70 of the PE firm respondents of the survey seem to bear this impression. The E&Y report, published in May, suggested that India was attractive ahead of the US and Canada.

Arpan Sheth, head of the India private equity practice of Bain & Co, another global consulting firm, told Business Line that he was cautiously optimistic about growth in investment trajectory this year. “Confidence in the business environment based on government’s approach to infrastructure investment, regulatory policy, including taxation and FDI, and clarity in policymaking are critical,” Seth said.

According to Bain & Co, the total deal value of PE investments in India during 2013 at $11.8 billion grew 16 per cent over 2012. But this is not quite a match for the 2011 level of $14.8 billion. Volume grew for several small deals (less than $20 million), while deal value grew due to a few large-sized deals.

Growth was recorded despite large investment overhang, the downbeat macroeconomic situation, and changes in valuation expectations. “These factors are expected to be key motivators of change in 2014,” the firm said.

Cushman & Wakefield, realty consultants, said that in the January-March quarter PE funds invested $460 million, nearly 2.5 times the investment in Q1 2013.

Waiting for opportunity

Though India-dedicated funds have shrunk, there is enough capital, especially from Asia-Pacific and global funds, which might come to India. Several sovereign wealth funds are also seeking the right investment opportunity.

Fund-raising for India became difficult, as overseas investors intensified scrutiny of targets, sectors and promoters before committing money. According to Vikram Uttamshingh, MD (Transaction Advisory) of Alvarez & Marshal, in recent times some PE firms exited by selling to larger funds.

Published on June 05, 2014

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