Plus factors such as GDP growth, policy reforms attract PE funds

India has been a favored Asian destination for foreign private equity (PE) funds, contributing significantly to the country's emergence in the past decade. But some experts warn that high PE returns may be a thing of the past.

A multitude of events have shaped the investment climate. India's growing global stature, a more open economy and positive indications of reform have encouraged PE investment inflow over the years.

A KPMG report, Returns from Indian Private Equity, said that over the past decade, India has been among the most important emerging markets for PE after China, and often competes favorably with it.

"Lower dependency on leverage as compared with developing markets has really made India a safe PE destination," says Ashutosh Dash, assistant professor of finance at the Gurgaon-based Management Development Institute.

"Alongside the GDP growth, market-based growth environment with attractive sustainable socioeconomic environment and regulatory regime are vital factors in making India a hub for PE investments," he says.

Venture Intelligence, a PE database in India, indicates that the number of deals from 2000 to 2006 was 1,015, involving more than $14 billion, which went up to 1,306 during 2007 to 2009, with a total volume of almost $29 billion.

Recent years delivered another leap in the numbers. From 2010 to 2013, India witnessed a record PE investment of around $35 billion for 1,792 deals.

Favorable demographics, growing GDP and rising foreign direct investments, coupled with forward-looking policy reforms, led to an increase in investments from PE players last year.

According to annual transactions data released by VCCircle.com, a New Delhi-headquartered online financial information group, PE investments in India have risen 12 percent in value terms from $9.5 billion in 2012 to $10.68 billion in 2013.

"India's 1.2 billion strong population, an aspirational growing middle income group and per capita income growth continue to attract PE investors," Sahad PV, founder and editor of VCCircle.com says.

The average deal value in 2013 increased by a third to $21 million from $16 million in 2012. Meanwhile big-ticket deals, those of more than $100 million, constituted 56 percent of the total deal value in 2013.

In the top PE deal of last year, New Delhi-based Bharti Airtel, one of the largest providers of mobile and fixed telephony in India, raised $1.26 billion from the Qatar Foundation Endowment.

According to reports, the deal is the largest PE investment in India in the last five years.

Dhanpal Jhaveri, partner and CEO of Everstone Capital, expects this PE growth will persist. "Despite slowdown, the PE inflow to India will continue to grow in the long term, because the country has a unique position in the global arena with strong domestic consumption and a rapidly growing middle class," says Jhaveri. "Global investors know the Indian market very well and they evaluate the country on an absolute basis."

Last year also saw major PE deals like global investment firm Kohlberg Kravis Roberts acquiring a controlling stake in the Alliance Tire Group, a global tire maker, for $470 million from Warburg Pincus.

Baring Private Equity Asia acquired a 71 percent stake in Hexaware Technologies for $390 million in the same year, while PE major Apax Partners acquired GlobalLogic, an offshore software services provider, for $420 million.

Partners Group, based in Switzerland with $33 billion under management, has acquired a majority stake in CSS Corp, a management and technology support services company, for $270 million.

A sector-wide analysis shows that the top five industries in terms of the number of deals are IT, which attracted 210, followed by consumer discretionary (152), financial (99), healthcare (73) and industrial (60).

China Daily