PE funds remain bullish on India

MUMBAI: Barring a minor “ripple effect”, private equity (PE) players do not expect the US subprime crisis to truncate inflows into India in the near term.

Absence of leveraged buyouts (as in the US and Europe), abundance of India-dedicated funds and renewed interest among “long only” pension and endowment funds would provide the necessary cushion for PE funds operating in India, according to experts.

The Reserve Bank of India, in its 2006-07 annual report, recently warned that PE funds, which are major investors in emerging market economies like India, could pull out in the face of continuing crisis in the US house mortgage market.

“There should only be some ripple effect in the near term. Unlike in the US and Europe, Indian PE funds do not indulge in leveraged buyouts (LBOs),” said Venture Intelligence CEO & founder Arun Natarajan.

“Secondly, unlike during the 2000 stock market scam, when PE players retreated in large numbers, there is an abundance of India-focused PE funds now. This negates chances of fund disbandment and pull out. Thirdly, (post the subprime scare) we are still seeing deals happening in the PE segment,” Mr Natarajan added.

A peep into the available data for the past two months, since the beginning of the subprime scare, show that there has been no serious dip in the number of PE deals. About 47 deals worth $2,360 million were effected in July and August as against 68 deals worth $1,080 million during the same period in 2006.

In 2006, India-dedicated PE funds accounted for 41% of the investments (in terms of absolute numbers) and 23% in value terms, logs a Venture Intelligence study. Moreover, experts said with capital markets at the receiving end of the subprime meltdown, causing steep valuations to mellow down, there will be more PE deals done over the next six months.

“We have not seen any impact as yet; and even if there is any, it would be indirect and minimal. As far as PE fund raising is concerned, there are already several India-focused funds waiting to invest in the country. Investors are still interested in India as an investment destination,” said Clearstone Advisors director Rahul Khanna.

The second quarter of 2007 witnessed funds worth $3.2 billion being invested across 76 companies in India. With about 16 more global or pan Asia funds with significant focus on India seeking capital for investment the accumulated capital pool depth would be $15.5 billion, to be invested in two years’ time.

“PE funds operating in India do not really have financial institutions investing into them. Most of the investors are pension funds, trusts or endowment funds, which have a long-term outlook. Unless and until subprime crisis balloons to a larger issue, there will be no real impact on PE inflows into India,” said Veda Corporate Advisors director M Vinod Kumar.