FIIs, PEs turn cautious of fresh investments


“The rush for private equity investments into India has slowdown a bit at present. As now the managers are studying the companies more carefully before making any new investment commitment,” Grant Thornton Partner (Corporate Advisory Services) Harish H V said.

With global private equity fund closure during the second quarter of 2009 dipping to record lows, PE funds investing in India are also being cautious as limited partner or the part owners of funds are constantly questioning the intent of investment.

“Limited partners or institutional investors are increasingly becoming sceptical about their investment decisions and are questioning the intent of the General Partners,” SMC Capitals Equity Head Jagnnadham Thunuguntla said.

Liquidated stake

Marketmen said, with improved capital market sentiment PE funds are now preferring to liquidate their stake.

“Confidence is back in the Indian market and the degree of scepticisim has reduced to what it was six months back. However, with the capital market boom, PE funds are now preferring to exit via open market transactions,” Thunuguntla added.

“India is among the few markets wherein the PE firms are still looking at investments in times of downturn. Although the momentum has picked from its six months ago levels, but they are still cautious in making new investments,” Harish added.

During second quarter 2009, globally 89 private equity funds reached a final close securing US$79.7 billion among them, considerably less than the US$194.5 billion raised by the 274 funds to hold a final close in the same quarter the previous year, the survey by global research firm Preqin said.

Fresh breather

“The capital market bounce starting April 2009 has seen several PE (Private Equity) funds selling their investments in the open market. The recent market bounce has given a fresh breather of life for several PE investments with impressive recovery of losses,” Thunuguntla said.

So far this financial year, there has been 25 exit deals through open market transactions and the amount mopped up by private equity funds stood at Rs 1,531.27 crore.

PE firms which invested in the Indian companies in 2006- 07 are now finding the current valuations below the levels and are gradually slowing their investments.

The several prominent exits, either partial or full, by PE funds during this period includes ChrysCapital’s sale of their stake in Shriram Transport Company for about Rs 300 crore, Orient Global’s stake sale in India Infoline for about Rs 250 crore and Warburg Pincus’s sale of stake in Max India for Rs 246 crore.

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