Indian private equity nosedives

The total value of private equity investments made in India fell 77 percent in the first five months of 2009 - but fundraising fever continues.

Private equity investments made in India In the first five months of 2009 totalled $1.2 billion — a 77 percent drop in value from the corresponding period last year. The number of deals in 2009 also fell significantly to 72 from 187, according to data from Indian data service Venture Intelligence.

A few investments in May — which saw investment totals drop 61 percent, compared to May 2008 — included New York-headquartered GTI Group's $50 million investment in Nova Medical

As long as the public markets remain strong, we expect private equity investments to pick up in the second half of 2009.

Anand Natarajan

Centres and the $49 million investment in edible oil maker KS Oils by New Silk Route, Citi Venture Capital International and Baring Private Equity Asia.

“While the number of deals has declined across the board since October 2008, relatively speaking, we expect faster pick-up in investments in the late stage (including mature private companies, PIPEs and pre-IPOs) and early stage categories since there is less haggling over valuations in these cases compared to growth-stage investments, where entrepreneurs might want to hold back from raising money in the hope of receiving better valuations later,” Arun Natarajan, managing director and CEO of Venture Intelligence, said in an interview.

In the first five months of 2009, late stage private equity investments were most popular in India with $504 million being invested in this segment across 23 deals. PIPE deals remained popular as well, with 18 or a quarter of all deals being struck. The first five months also saw 21 venture investments worth $97 million, five growth stage deals worth $216 million and four buyouts worth $75 million. No pre-IPO investments were made in this period of time.

Natarajan said that private equity investors who where active buyers in 2004 and 2005 are making use of the rising public markets to book profits on some of their earlier investments. But the recovering stock markets are a good sign for Indian private equity, in his opinion. “As long as the public markets remain strong, we expect private equity investments to pick up in the second half of 2009,” he said.

However, the slowdown in deal volume is not reflected in fundraising for the country. Earlier this month, SIDBI Venture Capital disclosed that it has started raising capital for a fund targeting 10 billion Indian rupees ($209 million; €150 million). Singapore-based 3 Degrees Asset Management and India's Spice Finance, have teamed up to launch a $100 million fund targeting distressed investments. Some other firms in the market for India-focused funds include ICICI Venture, VentureEast, Zephyr Peacock, Lazard, PTC India, Kaizen Global, Aditya Birla Capital Advisors and Reliance Capital.