Private equity investments up in India

New Delhi: Private equity investments, which ballooned to nearly 25 billion dollars over the past four years are likely to continue strongly through 2010, driven by robust economic growth and attractive market valuations, a latest report says.

According to a study by global consulting firm Boston Analytics, around 903 private equity investments worth 24.8 billion dollars in value were made in India from 2004-2007, with more than 45 of those deals exceeding 100 million dollar.

In 2003, private equity investments were just 56 with an average size of 8.4 million dollars but it increased rapidly in the past four years to 387 deals worth on average of 36.8 million dollars by 2007.

According to the report titled 'Private equity landscape in India', demographic and economic factors spurred this rapid growth. The liberalisation of India's Economy coupled with a middle class that grew to more than 300 million provided an increasingly diverse skill base awash with more and more disposable income thereby resulting in a large consumer base and a need for a variety of different services.

The study reveals that country's current market situation and the dynamics of its Economy are likely to result in continued growth through 2010.

The major attributes favouring the country's investment climate include rapid GDP growth, favourable demographics as about half of the population is under the age of 25 and a high domestic savings rates.

Interestingly, the correction in the domestic stock market with the benchmark index Sensex dropping by 21 per cent in the first two months this year, has eased valuations of target Companies for private equity investments.

Besides, a comfortable foreign exchange reserves position of USD 301 billion in February, the report added.

More than one-quarter of the total PE investments (28 per cent) in 2004-07 period were in the IT industry. Manufacturing saw the next largest number of deals accounting for 17 per cent followed by Banking, Financial Services and Insurance (BFSI) and healthcare with 10 per cent each.

Although BFSI represented only one-tenth of the number of Companies invested in by private equity firms, the sectors 93 deals accounted for the largest share of the 24.8 billion dollar transacted.

'As many would expect, the IT sector was very active in the past four years. However, India's rapid economic growth, relaxation of regulatory constraints in several sectors and active stock Markets have made India an attractive destination for private equity investments,' Boston Analytics Vice President Private Equity Swati Chaturvedi.