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.

“The average deal sizes went up and valuations increased considerably. After the dotcom phase, both valuations and quantum of investments dipped and there was a marked trend towards investing in later stage ventures, businesses with track record, PIPE (Private Investments in Public Enterprises) deals, non-technology businesses etc,” it said.

This period has also seen a consolidation in the industry with several unsuccessful funds closing down. Many of the PE firms — like BPEP India, UTI Ventures, ICICI Ventures, Sequoia Capital etc — have raised their second or third round of funding with much larger corpuses. Several international funds — like 3i Capital, Matrix Partners, Blackstone Ventures, Temasek Capital and many more — have established a presence in India with large fund sizes dedicated to India.

According to Merrill Lynch, one of the most important markets for investors this year has been India. "Foreign investors poured in close to $8.5 billion helping to push the index to an all-time high, and deliver US dollar returns of almost 42 per cent. By the end of the year this had left Indian equities also trading at a near record premium of 30 per cent to the region," it said.

Tech funds top in Dec returns

MUMBAI: Indian equity funds investing in technology stocks topped the returns chart in December on the back of robust growth in mid-cap stocks, but banking funds suffered losses, data from fund tracking firm Lipper showed. IT funds gave returns in the range of 4.71-11.35 percent over the month, beating the 3.24 percent gain of sector benchmark BSE IT index, data from Lipper showed. “In the last one month, mid-cap tech stocks have outperformed the large-cap tech stocks,” Anup Maheshwari, head of equities, DSP Merrill Lynch Fund Managers Ltd said. Technology funds with good exposure to mid-cap and small-cap stocks gained from the outperformance, he said. — Reuters