Private equity investments (PE) in India have crossed the $10 billion mark in the first ten months of the current year as against $ 7.9 billion in 2006, $2 billion in 2005 and $1.7 billion in 2004. The real estate and infrastructure sector has become the hot destination of private equity funds with the sector cornering 50 per cent share in value of all private equity investments, having received about $5 billion in 52 deals this year.

India has emerged the top destination in Asia (excluding Japan and Australia) surpassing China that recorded $8.3 billion in investments so far. China received $13 billion in private equity investments in 2006 compared with $7 billion in India during the same period. The equation has changed since then, with India well in the lead this year.

After P-Notes, the surging PE inflows — especially to the realty sector — has become a cause of concern for regulators. The Reserve Bank of India, it is learnt, has already alerted the government on the pitfalls of the PE inflows. As PE inflows are coming under automatic route of the FDI (foreign direct investment), the regulators can do very little to curb them.

According to Indusview, real estate alone cornered 26 per cent share in value of all private equity investments, having received $2.6 billion in 32 deals closely followed by telecommunications with 21% share in value of all investments at $2.1 billion. The latest deal was by DLF, India’s biggest real estate developer by number of properties built and market capitalisation, which raised Rs 1675 crore by selling stakes to private equity firms — mainly Merrill Lynch — in new residential projects.

On the other hand, Australia and India still hold the PE M&A buyout market increasing more than two fold at 112.5 per cent and 108.5 per cent respectively. “Both countries already toppled full year 2006 volumes with US$ 29.6bn and US$ 4.6 bn. Together, they hold 70.9% regional market share,” said a study by Thomson Financial.

Globally, real estate and infrastructure fund raising by international real estate private equity funds, has been brisk, with 116 funds raising as much as $72 billion in 2006, according to estimates and another $50 billion raised in the first eight months of 2007. A large percentage of these funds raised are focused outside of the US for investing in emerging markets such as India and China.

“India’s private equity market can expand fourfold using deal value as a per cent of gross domestic product and maintain the top slot ahead of China, its nearest competing economy, and the infrastructure sector will provide the necessary edge,” says Bundeep Singh Rangar, Chairman of IndusView, the India-focused cross-border advisory firm.

Though India’s growth trajectory is the region’s steepest, increasing at a 51 per cent annually since 1998, India’s private equity investments as a percentage of the country’s (GDP) is only 1 per cent vis-à-vis Western countries like the US at 2.3 per cent, and the UK at 3.3 per cent.

A significant share of international real estate funds will find their way in to the Indian real-estate and infrastructure market, which has the capacity to absorb as much as $300 billion over the next five years, according to government estimates, with key segments like roads, energy, marine-ports and airports identified, among others, as likely contributors to the inflow that currently have a miniscule share of $197 million in private equity investment.