News: Private equity in India is now a $4 billion gusher

(DNA 08/05/2006) Dubai - India has struck a rich vein of dollars in private equity funds. Close to $4 billion has been raised for investment in Indian companies over the last few months and the figure for calendar 2006 so far is already around $2 billion, according to investment and fund managers.

Foreign institutional investors (FIIs) may be going easy on stockmarket investments right now, but private equity managers are raking it in because wealthy investors continue to buy the India story. The only difference is that they are looking for investment opportunities in lesser-known, unlisted Indian companies.

Says Khaled Al-Muhairy, CEO of the Dubai-based Evolvence Capital, an asset management firm focused on Gulf countries and India: “India¹s strong fundamentals offer ample opportunities for private equity investments, with growth capital being the most attractive segment.”

With as many as 62 India-centric private equity funds at last count, the current situation is a far cry from the $20 million raised in 1997. “India-centric funds have raised almost $4 billion in recent times,” confirms Shahzaad Dalal, vice-chairman and managing director at IL&FS Investment Managers.

His company recently announced the closure of its Realty Fund with over $502 million in investor commitments against a planned $ 300 million.

As investors see it, opportunities will only increase if the economy continues to grow consistently at about 7-8% per annum. This would require growth capital of about $40-50 billion every year, Dalal added.

Says Achal Ghai, general managing partner of Avigo Capital Partners, which runs an India-focused fund: “Despite significant investments, Indian infrastructure services are still grossly inadequate and provide tremendous opportunities for growth.”

There is tremendous capital appreciation potential in the small and medium enterprises segment, too, he adds.
India’s emergence as a key focal point for rich investors across the world is not difficult to understand.

“The key growth drivers for the country are the demographic advantage, with 54% of the population below 25. This has also resulted in a consumer boom. Besides, there is a vast pool of professional talent and deregulation is happening in most sectors,” says Dalal. He was talking at the 2006 Asian Private Equity & Venture Capital Forum held in Dubai recently.

Cash-rich investors from the Gulf want a piece of the action. Private estimates put Gulf-related investments in the stockmarket at well above $2 billion over the last one year. Says Kamlesh Gandhi, executive director of Centrum Capital, a finance house: “There was always some interest from this region in India, but this has escalated in the past few years. Going forward, the actual money being invested will leapfrog a number of times.”

Vikas Thapar, managing partner of UK-based Carlos Place Partners, another private equity player, says that the Indian private equity market is relatively young but is likely to evolve into a large, competitive and sophisticated market with the emergence of different models and themes.

It will see specialist funds targeting specific industries or investment stages, more buy-outs, carve-outs and restructuring and a proportionate increase in fund sizes, he added.

With $4 billion already sloshing about in private kitties, nobody’s going to challenge that statement in a hurry.