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State of Venture Funds in India
Indian entrepreneurs and business houses have never had it this good. Unlike the pre-liberalisation days, before 1991, when companies had to push their case for bank loans if they wanted to expand operations, entrepreneurs and corporate houses today are being wooed by venture capitalists and private equity investors, who want their share of the growth pie from an emerging market like India. Some of the biggest names in the Venture fund business like Citigroup, Blackstone and Carlyle are betting big on the booming economy and the India growth story and have earmarked a significant part of their Asia specific fund to invest in Indian ventures. Overseas venture funds that entered India after 1995 invested mainly on the booming Information Technology (IT) space, only to burn their fingers during the dotcom bust in 2000. This time, they have returned wiser and are casting their net wide, to include sectors like pharmaceuticals, real estate, infrastructure and power that are witnessing bullish growth. For instance in 2007, PE/VC's invested a whopping US$ 14.2 billion in about 387 deals in India, a growth of 89% over the previous year, according to the 'Indian Venture Capital Association (IVCA). Carlyle Group, the world's second-largest private-equity firm, plans to invest about $4 billion in Asian companies and is targeting countries like India and China among others, according to a report in Bloomberg newswire. Investment bank, JPMorgan had earlier announced plans to allocate an additional $750 million towards private equity investments in the Asia-Pacific region. Blackstone in three different deals has invested over $375 million in Indian firms in the past six months. One of the biggest reasons for the 'Go East' policy of large venture capitalists is the slowdown in the US economy and the emergence of the Asian tigers, China and India. Unlike their other Asian counterparts, the two countries have been consistently posting an average of 8% growth in the past few years, thanks to the stable political condition, successive governments that have given impetus to growth and the favourable investment climate. According to information provided by venture investment tracking firm, 'TSJ Venture Intelligence,' IT/ITES remains the most attractive sector in India, with over 85 investment deals signed in 2007. It is followed by manufacturing and the Banking and Financial Services (BFSI) sectors at 60 and 25 deals each. However, in terms of the quantum of investment, the BFSI sector leads, cornering about $3.97 billion of the total $14.2 billion invested in Indian firms in 2007, followed by the Media & Entertainment sector at 1.83 billion. Investment-heavy businesses like Engineering & Construction, and Healthcare & Life sciences received an investment of $1.63 billion each in 2007. Apart from the global VC's, India's homegrown investment firm, ICICI Venture Funds Management is also planning to raise $7.5 billion over the next three years to invest in Indian companies, thereby, raising the total value of assets under its control to $10 billion by 2010. Peepul Capital (earlier iLabs investment) recently announced the raising of its second India investment fund of $214 million. Unfortunately, a few recent developments have raised doubts of overpricing and shady dealings in the Indian corporate sector. Two deals that were touted to be among the biggest in 2007, ICICI Ventures' $800 million investment in Jaypee Infratech and Blackstone's $275 million in Ushodaya Enterprises have run into rough weather. The choppy condition of the stock market and overpricing of stock is said to be the reason for ICICI Ventures to pull back its plans to acquire over 10% stake in Jaypee Infratech in what could have been the largest ever PE deal in the country. Though political vendetta is cited as the primary reason for the Ushodaya-Blackstone deal to be mired in controversy, the lack of transparency in the usage of the invested fund is cited as the reason for Blackstone to revise its investment in media firm Ushodaya to $150 million. The stock market juggernaut had resulted in the overpricing of many Indian stocks that lack fundamentals. According to industry analysts, this has resulted in the erosion of wealth of many VC/PE investors who invested in Indian ventures, during the recent correction phase. However, the relatively transparent investment climate in India, thanks to the iron fist of the stock market regulatory body, the Securities Exchange Board of India (SEBI), will stand the market in good stead in these days of rough weather. Moreover, the subprime woes in the US economy is pushing investors out of the American shores, and India, with its booming economy and persistent growth will continue to be an attractive destination for venture capitalists and private equity investors in the years to come. Chillibreeze's disclaimer: The views and opinions expressed in this article are those of the author(s) and do not reflect the views of Chillibreeze as a company. Chillibreeze has a strict anti-plagiarism policy. Please contact us to report any copyright issues related to this article.
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