India Private Equity Market Set to More Than Triple to $7 billion by 2010

The private equity market in India, which attracted $2.2 in investment capital in 2005, will reach nearly $7 billion in 2010, according to a new Bain & Company study, "India Private Equity Outlook". That estimate is described as a conservative projection of India's upside private equity market potential.

Bain projects that in near-term, Indian PE market will feel very different than U.S. because of smaller deal size, limited buyout activity, and more PIPE and growth capital oriented deals. The combination of a growing Indian consumer class and an evolving set of differentiated Indian skills will fuel attractive private equity growth and investment opportunities in India over the next five years, according to Bain.

The top 25 investments accounted for about half the total amount from 2000 through 2005; nearly half of all deals were for $100 million or less. About 70% of the top 25 investments involved growth-capital (for a minority position in a company) or private investments in public enterprises (PIPEs).

Bain offers three primary recommendations for PE investors in the subcontinent:

1. Choose wisely: 

  • Target dynamic new sectors benefiting from the rise of the consumer class, including healthcare, real estate, banking and credit 

  • Capitalize on low-cost labor resources in areas such as software applications development, business services, engineering and technical design

  • Look opportunistically at emerging industry niches, including pharmaceuticals, automotive components and metal forging, as these subsectors and these industries build global scale

2. Exert quiet influence: Influence will come through bringing value-creating insights and recommendations 

3. Bet on the right people: Forge key local relationships with experienced entrepreneurs and managers who know how navigate through fast-changing markets

According to Bain, significant challenges for PE players in India include:

  • Limited availability of secondary market data

  • high asset valuations, a hurdle toward buyout market creation

  • government limits on access to foreign leverage

  • the reluctance of family-controlled businesses to cede control

Bain's "Indian Private Equity Outlook" study reviewed more than 150 Indian private equity deals, valued at about $7 billion, which represented 80 percent of all private equity deals in India from 2000 through 2005. 

Some of the best sources to keep an eye on the dynamics of Indian Growth and PE market include: NASSCOM, the premier trade body and the chamber of commerce of the IT software and services industry in India; VC Circle with a daily recap of the latest in  Indian Venture Capital, Priavte Equity and M&A; and Inside India’s VC Boom at GigaOM.

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