A double whammy of adverse market conditions and a depreciating rupee is expected to hasten the consolidation process within the private equity (PE) and venture capital (VC) space, say industry watchers. Many foreign players are likely to exit their investments altogether in the country, they point out.
Alok Aggarwal, chairman and founder of Evalueserve, a firm that tracks PE and VC firms, expects nearly 20% of foreign PE and VC firms to pull out.
“Out of 370 PE and VC firms active in India, about 260 are foreign players. With the financial market meltdown and rupee depreciation having dealt major blows to the PE industry, we expect 60 to 70 of them to exit the country within next 12 months,” he told ET.
The latest deal tracker by advisory firm Grant Thornton confirms that PE and VC deals in India are slowing down, and has already dropped to 2006-levels in October. “If the activity in the deal space remains moderate and subdued for sometime, a few foreign players will exit,” said PricewaterhouseCoopers executive director Sanjeev Krishan.
Analysts at Grant Thornton point out that a large chunk of investments have been coming from international funds, which in turn are funded by international banks or investment banks.
“The next 6-12 months would be tough for the PE industry in India,” says CG Srividya, partner, Specialist Advisory Services at Grant Thornton. She estimates that 70% of the PE funding is done by foreign firms, of which a sizeable chunk is accounted for by the smaller players.
“Unlike funds, which are directly backed by major international banks, these small players will feel most of the heat,” says Ms Srividya.
Venture Intelligence CEO Arun Natrajan feels that if the global credit scenario does not improve in the next 12 months lesser-known names in Indian PE and VC arena will have to bear the brunt. “While India-dedicated funds would not have a choice but to stay invested, we might see global funds moving out of India and reallocating assets if the current scenario does not improve within a year. Majority of the foreign PE investments in India comes from these lesser-known names,” Mr Natrajan said.
In October, the number of PE and VC deals has plunged to 12, a number last seen in January 2006. On an average, PE and VC transactions in the past two-and-a-half years have been between 30 and 35 on a monthly basis. In January this year, a record 60 deals were witnessed. The two major deals of October included Wipro chairman Azim Premji’s investment fund picking up a 3% stake in NSE for $100 million and Investcorp investing $98 million in Redington.
Source: Economic Times