Inst investors committing less funds; PEs turn cautious

Private equity firms are becoming cautious about making fresh investments in India with less funds flowing into this segment.

Updated: Aug 17, 2009, 20:37 PM IST

New Delhi: Private equity firms are becoming
cautious about making fresh investments in India with less
funds flowing into this segment as institutional investors
have become more sceptical in committing funds without
thorough research, experts says.

"The rush for PE investments into India has slowdown a
bit at present. As now the managers are studying the companies
more carefully before making any new investment commitment,"
Grant Thornton Partner (Corporate Advisory Services) Harish H
V said.

With global PE fund closure during the second quarter of
2009 dipping to record lows, PE funds investing in India are
also being cautious as limited partner or the part owners of
funds are constantly questioning the intent of investment.

"Limited partners or institutional investors are
increasingly becoming sceptical about their investment
decisions and are questioning the intent of the General
Partners," SMC Capitals Equity Head Jagnnadham Thunuguntla

Marketmen said, with improved capital market sentiment PE
funds are now preferring to liquidate their stake.

"Confidence is back in the Indian market and the degree
of scepticisim has reduced to what it was six months back.
However, with the capital market boom, PE funds are now
preferring to exit via open market transactions," Thunuguntla

"India is among the few markets wherein the PE firms are
still looking at investments in times of downturn. Although
the momentum has picked from its six months ago levels, but
they are still cautious in making new investments," Harish

During second quarter 2009, globally 89 private equity
funds reached a final close securing USD 79.7 billion among
them, considerably less than the USD 194.5 billion raised by
the 274 funds to hold a final close in the same quarter the
previous year, the survey by global research firm Preqin said.

"The capital market bounce starting April 2009 has seen
several PE (Private Equity) funds selling their investments in
the open market. The recent market bounce has given a fresh
breather of life for several PE investments with impressive
recovery of losses," Thunuguntla said.

So far this financial year, there has been 25 exit deals
through open market transactions and the amount mopped up by
PE funds stood at Rs 1,531.27 crore.

PE firms which invested in the Indian companies in 2006-
07 are now finding the current valuations below the levels and
are gradually slowing their investments.

The several prominent exits, either partial or full, by
PE funds during this period includes ChrysCapital`s sale of
their stake in Shriram Transport Company for about Rs 300
crore, Orient Global`s stake sale in India Infoline for about
Rs 250 crore and Warburg Pincus`s sale of stake in Max India
for Rs 246 crore.

Bureau Report