MUMBAI: Powering its way through, the Indian IT/ITES sector saw as many as 87 private equity deals, netting investments worth $1,470 million in 2006.
Though there has been intense private funding activity in other ‘private equity pockets’ like manufacturing and heavy engineering sectors, IT continues to be a hot sector for private equity (PE) investments in India.
According to data available with Venture Intelligence India, a research service focused on PE and venture capital activity, year 2004 saw the IT/ITES sector entering into 29 deals. These deals accounted for about 45% of the total PE investments into India at $976 million. The sector could only bag $412 million from 46 deals in 2005.
The sector, however, has lost its share in the ever-expanding PE-pie, accounting for only 29% of net PE investments in 2006. It is estimated that a record $7,460 million (around 299 deals) were invested in India during 2006. The going seems to be extremely good for upcoming investment sectors like manufacturing, banking & finance and engineering & construction.
In the manufacturing sector, only 11 deals, accounting to about 17% of the total PE investment were done in 2004. This figure has risen to 29 deals (contributing about 20% to total PE investment) in 2005 and 55 deals (accounting to about 20%) in 2006. The banking & finance sector saw only six deals in 2004, logging about 3.3% of the total investment. This has shot up to 7% (through 11 deals) in 2005 and 10% (through 29 deals) in 2006.
Another traditional PE favourite, the healthcare and life science sector is seen tripping rungs of PE allocation charts. The sector recorded about 3% lower that the previous years. The healthcare and life sector accounted for only about 9% of the net PE investments.
The engineering & construction sector witnessed a near-5% increase in total investments over the past two years. The sector accounted for about 8% of the net PE investments.
“Increase in allocations to manufacturing, banking & finance sector and engineering sector shows that private equity players are looking beyond export-oriented businesses to park their money. The rise in allocations to the manufacturing sector lays emphasis on the fact that PE players are becoming more focused on sectors that cater to the domestic demography,” said Arun Natarajan, CEO, Venture Intelligence India.
The manufacturing industry is estimated to have bagged an investment of $962 million in 2006, about $434 million more than in 2005. Shubhada Rao, chief economist, Yes Bank, said, “India is on an economic upturn. It is not only the export that is doing well, but sectors like manufacturing, heavy engineering and infrastructure are doing exceedingly well.”
The government’s idea of promoting inclusive growth will bring lean sectors like rural economy and agriculture to the fore. These sectors are likely to attract lot of investment, Ms Rao said. But will India be able to sustain the flow of private equity investment?
Nick Arnott of the London-based Private Equity Intelligence, said, “In terms of GP Location, India was the sixth biggest country in terms of aggregate commitments to private equity in 2006, with 17 funds achieving an aggregate $6.6 billion in commitments — 1.6% of the global market. India looks like it will become one of the real hotspot in 2007.”