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Private Equity Investment in India Totals $2.8 Billion in Q

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June 4, 2015

India is among the emerging markets where private equity investment is growing rapidly. The most recent figures for the first quarter in 2015 show the country attracted a total of $2.8 billion worth of private equity investments, which is a 15% increase over last year.

 

The First Quarter Results
The PricewaterHouseCoopers (PwC) India published its findings in its quarterly MoneyTree India report. The latest report looked at private equity investments during the period from January to March.

 

During this first quarter, 130 private equity deals took place in India, with the total value standing at $2.8 billion. Private equity investment in the country increased by 15% from last year’s $2.42 billion during the same period.

 

On the other hand, the private equity deal volume went down from the figures last year. The first quarter of 2014 saw 144 deals done in the country, while the first three months of 2015 had firms completing just 130 deals.

 

The Economic Times India quoted the leader of PwC India Private Equity, Sanjeev Krishan, who said, “Recent IMF and World Bank projections that the Indian economy will grow faster than China this year, and in the next few years, is expected to boost investor sentiment and should result in higher allocations for India.”

 

Furthermore, Krishan said the current economic climate is favourable for improved investment levels. India’s interest rate is declining and inflation has remained low, which are both attractive signs.

 

Drop from the Final Quarter in 2014
Despite the positive results compared to the first quarter last year, the first three months of 2015 couldn’t match the fourth quarter performance of private equity investments in 2014.

 

The period from October to December last year was impressive for India’s private equity industry. Investment stood at $4.25 billion during the final quarter. This has declined nearly two-fold in the first quarter of the year.
More importantly, the deal volume for the period only stood at 107 deals made.

 

The Best Performing Sector
There was also some variation in the best performing sectors in the first quarter of 2015 and the final quarter of 2014.

 

The latest results show the banking and financial sector (BFSI) topping the list. The sector was able to attract $891 million worth of private equity investment in a total of 14 deals.

 

The BFSI sector was closely followed by the IT and IT-enabled services sector, which attracted $836 million worth of investment. The bigger difference in sector performance was deal volume, as the IT and IT-enabled services sector attracted the investment in 71 deals.

 

The two sectors had switched places in the first quarter compared to the final quarter of 2014. The IT and IT-enabled services sector took the top spot in Q4, with $2.56 billion in 59 deals. The investment levels then increased by 55% compared to the third quarter in 2014.

 

The BFSI sector managed to grow investment value quite a bit from the $563 million in the final quarter of 2014. Deal volume in Q4 stood at 11, which at the time was double the deals to the previous quarter.

 

Successful Government Reforms
The Indian government has launched a number of reforms to attract more investment. The ‘Make in India’ campaign, together with the ‘Digital India’ campaign, have been successful in boosting market prospects in the region.

 

According to the PwC quarterly report from Q4 in 2014, the improved private equity investment in sectors, like the IT and IT-enabled services, has been driven by growth of the e-Commerce sector.

 

Sandeep Ladda, leader of Technology at PwC India, said in the Q4 2014 report, “E-commerce is expected to continue the growth trajectory in 2015, with more investments driven by likely improvements in regulatory environment and policy.”

 

“It is expected by the IT/ITeS and eCommerce companies that the Budget 2015 will address some key industry tax and regulatory issues and create a platform to attract more investments,” Ladda continued.

 

In terms of the other sectors, healthcare and life sciences sector witnessed a total of $292 million worth of private equity investments. The value was achieved in just nine deals in the first quarter.

 

Furthermore, the energy sector attracted $207 million worth of investment.

 

Regional Differences
India’s different regions also have attracted different amounts of private equity investments in recent years. The big cities naturally lead the investment, with Bangalore being the key destination for private equity. The businesses in the city made 35 deals worth a total of $715 million.

 

The National Capital Region (NCR) took the second spot with $691 million worth of investment in 33 private equity deals. Mumbai took second spot with 26 deals and $623 million worth of investment.

 

First-Timers Are Looking to India
India’s growing economy has captivated the attention of many first-time investors in the country. Bain & Co.’s India Private Equity Report 2015 reported earlier that 30% more private equity funds invested in India in 2014 than 2013, with around 440 funds investing in the country last year.

 

According to the report, 50% of the funds were investing for the first time or after a long gap. Arpan Sheth, the head of Bain & Co’s India PE practice, told Livemint, “A new class of investors has now come to India, particularly on the early stage and growth side”.

 

But despite the positive developments, industry experts remain cautious. The Bain & Co. report also showed the value of exited investments dropped by 22% in 2014 compared to the previous year. Deals concluded before the financial crash in 2008 are especially risky, with quite a few viable exit options in the horizon for the funds.

 

Although recent years have seen increased valuations once more, experts don’t believe there is as much risk involved this time around. Darius Pandole, a partner at New Silk Route private equity firm, told Livemint, “Having gone through multiple cycles, the PE industry is more mature and circumspect today and hence more aware of appropriately pricing in risk”.

 

India will be an opportunistic market for the private equity sector and it’ll be interesting to see how the industry develops this year.

 

If you want to find Indian private equity deals, check out DealMarket.

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