Economic slowdown may shelve growth plans of private equity companies

NEW DELHI: Rising economic uncertainty will lead to several private equity (PE) firms delaying plans for a new fund or even closing their India operations in the coming months fear industry watchers.

“Due to the imminent slowdown in the economy, arising out of uncertainty in the global markets, decline in factory output and the weakening of the rupee, several PE firms are finding the going tough and a few could even shut shop in the months to come,” said Rahul Bhasin, managing partner at Baring Private Equity Partners.

The first signs are already visible in the shelving of plans for a growth fund by marquee venture capital firm Accel Partners. Earlier this year, the Silicon Valley firm was in talks to raise about $400 million growth fund, which was aimed at making investments in the $10-30 million range in India.

These plans are now on hold, according to persons familiar with the development. Canada-based PE fund SITQ is winding up its operations in the country, as it’s not been able to identify deals in the ‘right value’.

SITQ had plans to invest up to $1.6 billion in the real estate sector and had entered the country in 2007. “We did not find the right formula to make direct investments in India and direct investments take time to achieve,” said a spokesperson at SITQ over an email response to ET.

An email sent to Accel Partners did not elicit any response. Tough market conditions and increased competition among PE investors in the country were the reason why Accel shelved its growth fund, according to people familiar with the development.

The firm which focuses on early stage venture funding in India will continue to invest in this segment with deal sizes typically below $10 million. These firms are not alone. The PE industry will soon witness a shakeout as the market becomes increasingly tough for fresh investments and fund raising.

“Today, there is increased competition among investors as the amount of money available with PE firms is much more than the number of companies looking to raise money,” said Bhasin.