Private equity (PE) investments in India declined by over 50 per cent, between April 2008 and February 2009, to $6.6 billion (around Rs 33,000 crore) from $14.3 billion (Rs 70,000 crore) a year ago. Total number of deals also dropped 33 per cent, to 292 from 436. According to industry experts, investment activity would pick up slowly through the year although they do not expect 2009 to be much better than 2008.
Arun Natarajan, founder and chief executive officer, Venture Intelligence, a Chennai-based PE research firm which compiled the data, said that, except for media and entertainment which reported a 96 per cent growth in value terms, all industries have reported a drop in investments.
Some of the big-ticket investments during the period include a $428-million investment by Providence in Adiya Birla Telecom in May 2008, followed by $225 million by GIC in Reid & Taylor India in June 2008, $190 million by a PE consortium led by IDFC in Quippo Telecom Infrastructure in August 2008, $175 million by Goldman Sachs in Mahindra & Mahindra in May and $174 million by Masdar in WinWind in September 2008.
Puneet Bhatia, managing director of US-based PE firm TPG, had recently said in a PE conference that “…a good part of the PE investments in India over the last two years, as an extended bull run dramatically ended, were fundamentally flawed. The sustainable private equity deal volumes in this market would be just about 50 per cent of the last couple of years,” he added.
The decline in investment was led by health care and life sciences, which reported a 75 per cent drop at $201 million (around Rs 1,000 crore) as compared to $809 million (around Rs 4,000 crore), a year ago. The number of deals also dropped by 51 per cent to 20 as compared to 41.
That was followed by BFSI (banking, financial services and insurance) sector, which reported a 71 per cent drop in investments at $862 million (around Rs 4,300 crore) as compared to $3,031 million (around Rs 15,100 crore), a year ago. Even the number of deals dropped by 19 per cent to 34 as compared to 42.
Natarajan said that there has been a sharp decline in PE investments post October 2008 — like in all asset classes. The lack of clarity in the ability to raise new funds, and instructions from Limited Partners (LPs – investors in PE funds) to go slow on new investments, has made PE investors very cautious.
“We expect investment activity to pick up slowly through the year and do not expect 2009 to be much better than 2008,” said Natarajan.
Industry sources added that PE firms are likely to stay away from some industries, like real estate due to the sliding realty prices and slowing sales which is scaring them away from one of the hottest investment destinations of recent years.
Industry sources also pointed out that private equity players see fewer opportunities emerging in the near term due to the fact that the country’s economic growth is set to slow to around 7 per cent during the current fiscal, and may lose more steam in 2009-10 after growing at around 9 per cent or more in the past three years.
Source: Business Standard