PE investments and fund raising may rebound in 2013

Private equity investments in India slumped 15 per cent over the course of 2012. The year saw investments worth $8.85 billion across 406 deals compared to $10.35 billion from 481 deals in 2011. A slowdown in growth, challenging macro-economic conditions, policy inertia, ambiguity around GAAR and lingering deliberations around AIF Regulations (Alternative Investment Fund), impacted the investment climate negatively.

Both general partners (fund managers) and limited partners (investors in the funds) were apprehensive about the economic environment . Limited partners were hesitant about committing fresh capital to India and general partners were holding on to their cash due to uncertainty and the overall negative sentiment.  

With a 23 per cent decline, the depreciating rupee was a big dampener for returns, and hence, investment. General partners not only saw their investment portfolio shrink but were also grappling with the exit-return ratio, as their investments made in rupees had to generate returns in dollars.

However, with some positive indications towards the close of the year, such as clarity on FDI and AIF Regulations, sentiment has been picking up. General partners are optimistic that the investing universe will widen. "The minimum investment cap by investors (in domestic private equity and venture capital funds) has been increased to Rs 1 crore under AIF regulations. With this, one can expect to see sophisticated investors investing in specialised funds and schemes gaining momentum," says Mridul Upreti, Chief executive Officer, Jones Lang LaSalle.

The general sentiment is that irrespective of India's macroeconomic performance in the last couple of quarters, limited partners do not have as many avenues to deploy capital in their own economies. India will still generate returns in the range of 17 per cent for foreign limited partners. If anything has to grow, it has to be in developing nations.

In 2012, the homegrown ASK Advisors raised its second domestic fund of Rs 1,000 crore in six months. Now, it is on the road to raise its first offshore fund of $200 million. "International limited partners are willing to be in India but are cautious. The current environment provides excellent counter-cyclical opportunities. When availability of money is tight and capital is limited, chances to raise money are better, as limited partners will only back fund managers with a proven track record," says Amit Bhagat, MD & CEO, ASK Property Investment Advisors.

Sanjeev Krishan, a Leader in PwC India's private equity practice, is also optimistic. "The global crisis has meant that in some cases, global strategic investors may be looking to monetise their Indian assets. The rumoured Lafarge deal, if it happens, could be another instance where emerging market growth needs support from local funding, as global players struggle in home territories. It is expected that there will be more such opportunities in 2013."