It's destination India for private equity funds across the world. Private equity investment in India shot up by over 230 per cent in 2006, thanks to the growing interest of equity funds in domestic companies and high returns from the stock markets here. Private equity fund investment in 2006 was $7.46 billion, up from $2.26 billion a year earlier, according to industry tracking firm Venture Intelligence.

Private equity deals were led by the technology sector with 87 deals for $1.47 billion, up from 46 deals for $434 million in 2005. However, China has attracted close to $12 billion PE investments in 2006 but private investment in listed companies fell to 22 per cent of total deals, from 34 per cent a year earlier, as the BSE Sensex surged 47 per cent. “It does not make sense for private equity firms to chase listed firms where the valuations have risen sharply,” said Arun Natarajan, CEO at Venture Intelligence.

There have been a few significant management buyouts in the recent past in the Indian PE industry. Some examples are KKR’s acquisition of 85 per cent in Flextronics Software Systems; Actis’ acquisition of significant stakes in Nilgiris, Phoenix Lamps, Paras Pharma etc; Navis Capital Partners’ acquisition of Nirulas, etc. “PE investments are expected to cross the $10 billion mark in 2007. Many funds had made big profits from India in 2005 and 2006,” said a fund manager.

The current PE investment landscape in India is much different from the initial venture capital / risk capital setting during mid to late 1990s. In the initial stages, the venture capital market started with a focus on seed / start-up funding and the average investments size were small. According to Grant Thornton, the market picked up during the year 2000, which was the first year to see more than a billion dollar in venture capital (VC) investment, thanks to the dotcom boom. Most of the funding during 2000 and 2001 was used to finance portals and other Internet ventures.

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