India to receive $10 bn in private equity by year-end, says CII and KPMG

Sunday, May 9, 2010, 14:22 by Business Editor

A recent report released jointly by the Confederation of Indian Industry (CII) and KPMG, a global auditing firm, has said that private equity (PE) funds will be preferred for capital growth and India will gain PE investments amounting to around $10 billion by the end of the year.

The report states that the private equity industry in India is very vibrant with over 1,500 private equity deals done since January 2006 bringing in $32.5 billion in investments. Industry estimates point to investments from PE deals being between $ 9 billion to $10 billion by December 31, 2010.

The report also adds that funds for important infrastructure projects needed to support the seven to eight percent growth rate of India’s Gross Domestic Product (GDP) is expected to be obtained in the form of capital gained from PE funding. The report mentions that India requires an investment of $1.3 trillion over the next three years to sustain a seven to nine percent growth in GDP and $60-100 billion of that investment will come from private equities.

An estimation of more than 135 domestic and 137 foreign PE fund managers in India is given in the report. It also states that PE investments over the last three years was calculated to be equivalent to 33-72 percent of the total equity gained from primary markets.

Private equities emerge as major sources for funds in crisis periods, with the main beneficiaries being micro, small and medium enterprises (MSMEs). The CII-KPMG report says that around 70 percents of investments from private equities in 2008 have been directed at MSMEs with a turnover of less than Rs 500 crore.

The report was prepared on the basis of a survey of 17 companies that received funding from private equities. Company management as well as PE firms were interviewed as part of the process to obtain inputs on the value addition from PE companies, other than the provision of capital.

The findings of the report also include facts such as private equity having a maximum impact on corporate governance, changes in the business model and professional talent management with a slightly lesser impact on development of the product and finding strategic partners. The least impact of PE funding was seen on financial recapitalization, creating spin-offs and new technologies and the improvement of efficiency.

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