India’s private equity story is getting bigger even as the global credit crunch is squeezing the funds mopup globally. It is believed that private equity funds are in the midst of raising a jaw-dropping $48 billion for the Indian market by 2010.
And the way the Indian economy is growing, experts opine the figure could be bigger. “Since 2003, the Indian economy is growing at 8–9% annually in real terms and at 13–15% in nominal terms (including inflation). Some sectors (services and high-end manufacturing) are growing at 10–14% in real terms and 15–20% in nominal terms, thereby attracting VC-PE investment.
If this kind of growth continues, the economy can easily absorb $60 billion during 2007–10 and as much as $500 billion during 2007–20,”’ according to Evalueserve chairman Alok Aggarwal. Several PE firms would be willing to invest even more if they saw good investment opportunities, he added.
The primary reason, he says, behind the intent to raise such funds is because of the huge demand-supply scenario while there is enough liquidity in the system. Arun Natarajan of Venture Intelligence says, “when people think about investing in Asia, the two important PE markets for them are India and China. There is absolutely no sense of question marks when it comes to putting money here.”
Just to give the right picture of where the $48 billion from 2007-10 stands, here are some stats. According to Emerging Markets Private Equity Association (EMPEA), 107 PE funds focused on investing in the emerging markets of Asia, Europe, Latin America, the Middle East and Africa raised $21.5 billion in capital commitments in the first half of 2007.
Asia, including China and India, accounted for $11.6 billion. Reports have said that PE funds in the US have raised over $199 billion in the first nine months of 2007, while funds raised in Europe in same period stood at $73 billion.
There is also absolutely no impact from the credit crunch on the PE firms’ enthusiasm for India. Mr Natarajan said¸ “there are several established firms like ChrysCapital, ICICI Ventures and IDFC raising new funds, newer ones are also getting into the play while there is also tremendous interest from LPs (limited partners) from abroad to invest in fund of funds (FoFs).
This is because they feel the opportunity in India is for real.” There are over 366 firms currently operating in India and another 69 are planning to start operations soon.
Evalueserve, in a recent report on private equity in India, has forecasted robust growth in VC-PE investment in India (both in terms of number and value) between 2007 and 2010. According to the report, India would receive $13.5 billion in PE funding during 2007, becoming one of the top seven countries receiving such funding in 2007. Furthermore, funding could rise to almost $20 billion in 2010.
However, the actual investments will also depend on the opening up of some sectors like infrastructure and real estate. “For instance, if the infrastructure sector is opened up after 2009, the sector will command about 50% of all PE investment into the country between 2010-20.
So taking an average of $40-50 billion each year after 2010, about $20-25 billion will go for projects like power plants, road and transport, ports and airports,” said Mr Aggarwal.
Source: Economic Times