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India – The Next Stop for Private Equity?

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October 13, 2014

Private equity is always looking for new areas to conquer and India might be the next big thing. According to a recent Grant Thornton report, the country’s overall deal activity increased 22% in the first months of the year. This is good news for the country as it is trying to improve its economic performance. India was long regarded as the “jewel in the crown” for those targeting BRIC investments, but has proved a largely underwhelming investment destination.

 

According to the report, the number of deals in the country stands at 886, which is a steady increase from last year. In the first nine months of 2013, the number of deals was 694, which equalled to $29.7 billion. So far, the country’s deals have amounted to an impressive $36.2 billion.

 

These deals include both acquisitions and mergers, and private equity deals. The number of private equity deals stands at 445, with the deals being worth $8.45 billion. The total number of acquisition and merger deals stands at 441 and so far, the deals have been worth $27.8 billion.

 

Momentum
Although the year started with a moderate volume of deals, the elections in India were able to raise momentum. The result of the election also lured in more deals, as new Prime Minister Modi’s win was seen as a boost for business. The hope of more economic reform is still strong in the country and removal of red tape could see even more deals during the final months of the year.

 

This is exactly what Grant Thornton’s India partner, Raja Lahiri, expects to happen. He told the Economic Times of India, “We believe that this momentum of deal activity will continue to increase and we look forward to closing the year on a high note.”

 

Private equity deals in India have focused increasingly on the technology sector, together with e-commerce. In the technology sector, nearly 50% of the total deal volume has been created by private equity. According to Financial Express, some of the key deals include Cognizant’s obtaining of Trizetto for $2.7 billion, as well as the Flikpart-Myntry deal for $340 million.

 

Lucrative
Some of India’s biggest business leaders are also aware that India might not be as lucrative for investors as the reports might suggest. The Chairman of the Piramal Group, Ajay Piramal, said in a recent interview with The Hindu that he doesn’t believe India’s pharmaceutical industry is attractive enough for large acquisitions. The government needs to do more in order for investment to pour in.

 

India is embarking on structural reform, and if Modi’s most recent attempt to kick-start the manufacturing industry succeeds, it is very likely that the country’s private equity deals will increase further. Sectors such as infrastructure, energy and financial services might well see an increasing amount of deals during the final months of the year.

 

India is also emerging as a big investor in other economies. Gulf News recently reported that the influx of private capital to the UAE is mainly coming from emerging economies such as India. It seems India’s role as a key player in the private equity sector is evident and growing. According to a number of business leaders in the country, increasing deal volume cannot come soon enough.

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