Private equity investment into India to fall by a third in 2009

Sentiment from private equity firms towards investment in India is on the wane and cyclical markets like real estate are likely to be among those most affected, delegates at a Mumbai conference heard today. The message echoes last week’s PERE Forum: Asia 2009 conference in Hong Kong.

Private equity investment into India is to drop by more than a third in 2009 as investors shy away from “cyclical industries” such as real estate, according to a report.

Delegates at a private equity conference in Mumbai were told by Bain Capital and TPG to expect investment in India from private equity firms to drop by $5 billion to $7 billion across the sectors. Asset owners sticking to high price expectations and private equity firms tending to their existing assets will be to blame for the drop, the report said.

At the conference, Parvinder Singh, principal at Bain Capital said the best opportunities in 2009 would come from buying non-core assets or distressed units of large conglomerates and picking up stakes in non-cyclical sectors.

His comments were echoed by Ashish Dhawan, senior managing director at ChrysCapital, who said: “It is a cycle. In good times you raise and invest oodles of money in bad times you try and stay away.”

These sentiments mirror those expressed at the PERE Forum: Asia 2009 conference in Hong Kong last week, where delegates, made primarily from general partners described the country as having suffered unrealistic valuations based on future land prices, a disregard from practitioners towards high costs of capital, listed stocks that have plummeted between 80 and 95 percent, a corrupt public sector and growing political tensions with neighbouring Pakistan.

At the PERE event, Shahzaad Dalal, vice chairman and managing director of IL&FS, which has raised $1.4 billion in equity for investment in the country, admitted that IRR’s of 35 percent attained for real estate investment in 2007 had fallen. But he said: “I don’t prescribe to the view that investors (who have invested since) have lost all of their equity.”