EMPEA Insight: India

India rivals China as the destination of choice for private equity investment in emerging Asia. In 2007, India-dedicated funds raised US$4.6 billion versus China’s US$3.9 billion. During the first half of 2008, India funds had raised US$3 billion. Momentum in fundraising is only part of the story, however, as a number of PE investors are deploying capital in India through pan-Asia funds.

Over the last 18 months, PE investors have put more money to work in the Indian market than in China. India eclipsed China in total investment in 2007, attracting US$14 billion compared to China’s US$12.8 billion. Data provider Venture Intelligence estimates that private equity investment through June 2008 had reached US$6.3 billion. Zero2IPO, a data provider that tracks Chinese VC and PE investment, estimates that China attracted US$5.2 billion during the same period.

India’s economy has thus far proven comparatively resilient to the global slowdown. The International Monetary Fund revised its 2008 GDP growth forecast only slightly from 8.4% to 7.9%. While India’s growth story remains compelling, the current local economic climate poses distinct challenges and opportunities for PE firms. Inflation in India has hit a 13-year high, registering 12.3% annual inflation in September 2008. This development raises concerns about potential value erosion. Additionally, the rupee’s erratic movement against the dollar in the last 18 months has increased currency risks for foreign-currency denominated funds. The rupee appreciated 12% against the dollar in 2007. Having reached a peak in January 2008, the rupee subsequently depreciated by 12.2% against the dollar, falling a two-year low in September 2008.

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