PE investment in India to fall by one-third in 2009

Private equity investment in India in 2009 is expected to tumble by more than one-third to between $5 billion and $7 billion, as investor aversion rises and asset owners stick to high-price expectations, according to speakers at a private equity conference last month in Mumbai.

Private equity investment in India was just over $10.7 billion in 2008, a 38% drop from the year before, according to the Asian Venture Capital Journal.

“It is a cycle. In good times you raise and invest oodles of money; in bad times you try and stay away,” said Ashish Dhawan, senior managing director at ChrysCapital.

Speakers at the conference also said that PE firms will also be busy tending to Indian portfolios battered in the stock market meltdown. The Bombay Stock Exchange fell 52.4% in 2008, its worst year ever, ending a five-year bull run that saw the market rise 6-fold. It is down more than 6.3% so far in 2009.

“The sustainable private equity deal volumes in this market would be just about 50% of the last couple of years,” said Puneet Bhatia, managing director at TPG. “The price of being prudent and diversified has just not delivered.”

Almost three-quarters of the private equity investment in India over the last two years was in listed entities that have dropped sharply, and these are weighing on PE firms’ ability to invest, said Nitin Deshmukh, CEO of private equity at Kotak Investment Advisors.

The best opportunities in 2009 will come from buying non-core assets or distressed units of large conglomerates and picking up stakes in non-cyclical sectors, said Parvinder Singh, principal at Bain Capital.

PE firms are likely to shy away from cyclical industries such as real estate, as sliding real estate prices and sales scare them away from one of the hottest investment destinations of recent years, the speakers said. —Narayanan Somasundaram, Reuters