Frustrated funds

Will a new regulator and a more favourable tax regime succeed in stimulating the private equity sector?

Nandini Lakshman reports from Mumbai

Emerging markets are still an attractive playground for private equity (PE) players. Over the past decade, PE firms saw India as a destination of choice, even as economic growth slowed, the stock markets remained choppy, and the Indian rupee depreciated. “The past few years of economic uncertainty has ended private equity’s golden age of huge internal rate of returns,” says Shardul Shroff, the managing partner at Amarchand Mangaldas in New Delhi.

Quieter bets

As a result, big-ticket deals have been pushed out of the window. Private equity firms invested about US$1.9 billion across 90 deals during the quarter that ended on 31 March, according to a study by Chennai-based Venture Intelligence, which focuses on private equity and M&A activity in the country. The investment amount was just over half of the US$3.6 billion spent in the same period last year across 107 transactions.

“This is the third consecutive quarter of deceleration in PE investments in India,” says Arun Natarajan, head of the research firm. The loss of momentum is evident in the shrinking size of deals. There was not a single deal above US$200 million, compared with five in the corresponding period last year. “It’s a sign that investors were not willing to take big risks,” says H Jayesh, the founder partner of Juris Corp.