India’s current market situation and the dynamics of its economy are likely to result in continued private equity growth in the coming years, said a study by Boston-based research firm Boston Analytics.
“A correction in the stock market, leading to 21 per cent decline in the benchmark index BSE Sensex, in the first two months of 2008, has eased valuations of target companies for private equity investments,” said the study titled “The Private Equity Landscape in India.”
Domestic savings
The high GDP growth, projected to be 8.4 per cent in 2008, favourable demographics with roughly half of the population under the age of 25, a high domestic savings rate of more than 30 per cent and a comfortable foreign exchange reserves position worth $301 billion in February 2008 also augured well for the private equity investment, it said.
“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,” said Ms Swati Chaturvedi, Vice-President, Private Equity, Boston Analytics.
But the rising rupee and Government’s regulation of buyouts and PIPE (private investment in public equity) transactions may impact the private equity investments, the study said.
In total, 903 private equity investments worth $24.8 billion in value were made in India from 2004-2007, the study said adding more than 45 of those deals exceeded $100 million.
Although BFSI represented only one-tenth of the number of companies invested in by private equity firms, the sector’s 93 deals accounted for the largest share of the $24.8 billion transacted.
“The telecom and BFSI markets are poised to sustain their success as each is expected to grow by more than 20 per cent in this climate.”
Of the 903 investments made during the period 2004-07, more than one-quarter involved companies from the IT industry (28 per cent).
Manufacturing saw the next-largest number of deals (17 per cent) followed by Banking, Financial Services and Insurance (BFSI) and healthcare (10 per cent each).
Source: The Hindu