India is the top emerging markets destination for private equity investment during the next 12 months, according to a survey by Ernst & Young.
The report, which surveyed over 100 GPs and institutional investors worldwide, showed that 62 percent of respondents will increase investments in the country and 34 percent will maintain the same level.
Investors have been sour on India, which has experienced slowing GDP growth, regulatory hurdles and lack of exits. In the previous E&Y Private Equity Confidence Barometer in October 2012, India was the third most attractive destination.
In 2013, however, India has seen an uptick in activity. In May, Partners Group secured a rare buyout in the country, acquiring an 80 percent stake in CSS Corp for $275 million. The deal came weeks after Baring Private Equity Asia invested $256 million in concrete producer Lafarge India.
The second preferred destination in a near tie with India was China, with 62 percent of respondents intending to increase investment and 32 percent staying the same. Southeast Asia was third with 59 percent of respondents expecting an increase and 35 percent intending to maintain current levels.
The survey also showed that a large majority of GPs globally (81 percent) plan to allocate some of the funds they raise over the next 12 months to emerging markets, with a quarter of the respondents planning to allocate 20 percent or more of their capital to emerging markets. In the emerging markets category, Asia was the top destination.
On the LP side, the survey showed that about half of LPs identified fund diversification, both in terms of product and geography, as the most important investment issue over the next 12 months. Management team experience (46 percent) and historical results (33 percent) followed.
GP respondents identified that the top challenges facing emerging markets investors were the lack of attractive targets, local business governance practices and regulatory risk, including tax exposure.
On a global scale, respondents were positive about exits, fundraising and availability of credit. Eighty-five percent of private equity firms say that the fundraising environment is positive or stable, while 78 percent of private equity firms are spending at least six months over the next year preparing portfolio companies for exit.