PE investment in India likely to be US$48bn by 2010: ASSOCHAM

Real Estate sector is predicted to be the best beneficiary of PE landscape in India which would give them profit margins, varying anywhere between 35% and even 50%

Private Equity (PE) overseas firms investment in Indian market is likely to touch US$48bn in next two years as approximately over 400 such firms are operating in Indian market whose number would further scale up by another 69 or 70 by 2010, according to The Associated Chambers of Commerce and Industry of India (ASSOCHAM) because of potential factors.

Real Estate sector is predicted to be the best beneficiary of PE landscape in India which would give them profit margins, varying anywhere between 35% and even 50% as per estimates made by the ASSOCHAM in its yet to be published paper, Private Equity–The Money Tree.

In 2007, India attracted the highest PE investments, the valuation for which is estimated at US$17.14bn from emerging economy including China. As compare to India, China attracted less than 50% of PE investments in 2007, the estimates for which are at US$8.3bn.

Interestingly in 2006, China received US$13bn in PE investments compare to 7bn in India. This differential is indicative of the fact that India has already established an edge over China as far as PE Investments are concerned and its hegemony would continue for another few more years because of prospects to absorb such investments would brighten by much more vigorous pace, says the ASSOCHAM Venugopal N. Dhoot.

Releasing the findings of the paper Dhoot said, "no one could have predicted that Real Estate sector, which attracted in nearly US$1mn of PE in 2005, would go on receive US$820mn in 2006. Other promising sectors included information technology, banking and financial services, health care and pharmaceuticals.

A total of 386 BE happened in 2007, mainly in real estate, infrastructure and financial services space. The IT and ITeS segments led the charts in terms of volumes, accounting for 66 deals. Some of the top deals concluded in 2007 include Teamsek Holdings $1096 million in Bharati Airtel, Deutsche Bank, Citi group and other international investors, US$1000mn in GMR infrastructure and ICICI venture Funds US$800mn in JP infratech.

The Indian real estate an infrastructure sectors have been a key contributor to this rising inflows. Real estate emerged as the favourate segment with 26% share in all private equity investment in value term, receiving $2.6 billion in 32 deals, closely followed by Telecom with 21% share, investment touching $2.1 billion, says the ASSOCHAM paper.

It primes out that some of the major PE funds which are active in Indian market are Temasek Holdings, investment arm of Singapore government, Blackstone Group, a global private equity and investment management firm, Warburg Pincus, Carlyle Group, Washington and Actis Capital.

According to the study, PE has emerged as an attractive midpoint along the financial spectrum for Indian companies seeking to raise capital. This is evident from growth of the PE market in India every year, from US $1.1 billion invested in 60 deals in 2004 to US$2bn in 124 deals in 2005. Cumulatively, from April 2006 to February 2007, an amount of $ 11.89 billion has come in equity.

This marks a growth of 176% in dollar terms in FDI inflows into India cumulatively. The average PE ticket size has increased to $26 million, from $16 million a year ago. Conservative estimates suggest that approximately 150 PE funds are scouting for opportunities in India with a funding base edging towards $10 billion. PE today comprises the largest component of Foreign Direct Investment (FDI) in India with FDI inflows in equity only in February 2007 amounted to $698 million, compared to only $127 million in February 2006, a huge increase of 450%.