New Delhi: The prevailing macroeconomic conditions in the country are definitely hurting private equity investments. Policy paralysis, global uncertainties, volatile markets, and a depreciating rupee are dampening new investments. If the past three months are any indicators, here’s a lowdown. December 2011 clocked investments worth $567 million, January 2012 raked in $692 million and February 2012 saw investments worth $529 million.
Compare these to the preceding three months and the investment dip story is evident enough. November 2011 saw investments worth $952 million, October recorded investments of $1,640 million and September witnessed deals worth $1,076 million. And that’s not it. The deal size, too, is shrinking. As per VCCEdge data, private equity deals under $50 million accounted for 79% of total deal volume in February 2012, with the maximum deals struck in the $5-25 million space.
The sole $50-million deal was Warburg Pincus India’s $50 million investment in Au Financiers (India), a Jaipur-based non-banking financial company, clocking the biggest private equity deal of February. It was followed by the $40.29 million investment (for a 20% stake) by Fidelity Growth Partners India, along with existing investors in Hyderabad-based Aptuit Laurus.
Sanjeev Krishnan, executive director, PwC, says growth capital investments have slowed down owing to the overall macroeconomic conditions in the country. Krishnan says: “From a 9% to a 6.1% GDP growth; and one knows what to expect. No big-ticket deals are reflective of the fact that cash is crucial and is being preserved. With high valuations and fund raising not coming easy, general partners (GPs) are not committing big chunks to new deals.” With the fund-raising environment getting tougher by the day and the ‘India returns’ story already under the scanner, this will not translate into good news for the industry.
Rajesh Srivastava, CMD, Rabo Equity Advisors, says limited partners (LPs) are apprehensive about what’s going on in India. “Dipping growth rate, the prevailing uncertainty, coupled with a policy paralysis and volatile markets, are taking a toll not only on future investments but also on funds that are on road and are looking for a closure.”
Recently Rajesh Khanna, former Warburg Pincus big gun, shelved fund-raising plans for his maiden venture, Arka Capital. Rahul Bhasin, managing partner, Baring Private Equity Partners, cautions that the disconcerting macro-economic scenario is making the case of investing in India hard compared to China and Brazil.
“Global investors have put India on a wait-and-watch mode till India gets it’s act together. If things continue the way they are, their will be a definite LP shift to other emerging economies,” adds Bhasin.
Industry experts say given the recent spate of scandals, corruption cases coming to the fore and political deadlock on key issues, the investment road ahead looks bumpy. Krishnan says respite is just not in sight. “Election results have implied less stability at the centre and reforms taking a further backseat. And this, for sure, does not bode well for the overall investment climate in the country, which is slowly slipping into the negative.”