The Private Equity (PE) and Venture Capital (VC) industry is coming of age in India and has played an important role in the growth of the Indian industry across sectors.
Over the past six years, PE/VC investment has touched nearly $50 billion, which is a significant proportion of the total investment into India Inc. In comparison, capital raised through Initial Public Offerings (IPOs) during this period was $31 billion.
Even assuming that the PE investment is at par and assuming an average stake of 25 per cent, the total market value of PE investee companies would be at least $200 billion.
The market capitalisation of the Bombay Stock Exchange is around $1,400 billion. At a conservative estimate, PE is already about 15 per cent of the market. There are multiple assumptions as some of these are unlisted, but this gives a good sense of the scale of PE investment, according to a report on PE in the Indian Corporate Landscape released by the Indian Private Equity and Venture Capital Association (IVCA).
The report, ‘Fourth wheel', compiled in association with Grant Thornton says the total foreign direct investment (FDI) inflow into India over the past six years was about $116 billion and a good proportion of this was PE. It may be useful for India to lure more PE as it pitches for more FDI, according to Mr H.V. Harish, Partner, Indian Leadership Team, IVCA.
In the last six years, around 1,500 companies have received PE investments. Even if a third of these were to be listed over the next few years, they will form a significant chunk of the total number of companies going for IPO.
Bright future
PE investors have played a significant role in the development of several sectors, including technology, telecom, healthcare, retail and education, over the past decade. PE investments have grown from $2 billion in 2005 to $19 billion in 2007. Thereafter, investment value fell to $6.2 billion in 2010, a growth of 25 per cent over the last six years.
Mr Sudhir Sethi, Chairman and Managing Director, IDG Ventures India, expects $70-75 billion of PE and VC investments in India during 2010-2015. Nearly $22 billion is expected to be required for follow-up funding of current PE-funded companies. Then, around 2,000 companies in information technology, IT-enabled services, manufacturing, engineering and construction and healthcare, are expected to attract around $30 billion in new PE and VC.
There will be new investment in sunrise sectors such as telecom (driven by developments such as 3G), BFSI (driven by grant of new banking licenses), energy (supply–demand gap), education (as regulations become more favourable) and retail (favourable government policies and increasing foreign participation), Mr Sethi said.
The recent events at Satyam and Subiksha have clearly raised concerns among investors about the reliability of financial information and the integrity of management. Hence, robust diligence is the need of the hour and PE investors are clearly focused on enhancing quality of due diligence, the report says.