The private equity market in India has widely withstood the impact of the credit crisis, according to a recent poll of worldwide private equity firms.
Of the 37 firms surveyed, 68% said that they felt the Indian market was largely unaffected by the credit crunch.
Respondents also continued to rank the growth prospects of the of the region’s private equity market highly, as growth prospects scored 8.5 out of 10, slipping marginally from 8.6 out of 10 in the previous survey that covered the latter half of 2007.
The survey, which was commissioned by Deloitte, shows optimism is the dominant theme in the Indian private equity market, but the credit crunch is having some impact on deals.
“India is still very much a growth economy and there is massive enthusiasm for it and interest in it from global private equity firms,” says Sandeep Gill, managing director of Deloitte India.
“But with the credit crunch, company growth expectations need to be reigned in. There is a disconnect between entrepreneurs and their growth expectations for their companies and the reality of the situation. This means deals are taking longer to close,” he says.
Gill adds that the value of listed-companies has fallen significantly over the last 12 months and convincing private entrepreneurs to accept lower valuations was also delaying transaction completions.
There was also caution in the area of exits as 57% of respondents expect exit activity to fall over the next six months.
On the whole, however, the private equity market in India is vibrant. The fact that 85% of deals in the country are growth capital deals ensures the role played by leverage is minimal.
“There’s a lot of activity in the SME space with investments around the $20 million to $50 million mark,” Gill says.
Meanwhile, 86% of survey respondents believe growth capital deals will continue to dominate over the next six months. However, The Blackstone Group’s completion of controlling stakes in two companies this year suggests the nascent buyout market is gaining some traction.
The confidence in private equity in India, however, may have been slightly rocked by the turmoil of the last few days.
India’s Finance Minister Palaniappan Chidambaram, sought to reassure investors last week that India’s banks were largely sheltered from the exposure to the U.S. financial market. “Let me assure everyone there is no cause for any alarm that any Indian bank is exposed or vulnerable like a couple of banks that have failed in the United States,” he told reporters. —Thomson Merger News