India may see over $ 40 billion of Private equity investments in 2025, according to a recently released report by PwC India.

Between April 2000 and December 2013, total foreign direct investment (equity) inflow into the country stood at $ 209.8 billion, of which, PE investments accounted for $ 78.3 billion or about 37 percent of the total FDI inflow.

The PwC report titled ‘PE in India 2025 – A 40-bn-USD decade beckons?’ is based on conversations with over 40 partners and principals at PE houses.

The report said the belief was that the new government at the Centre would create a growth oriented and consistently applied regulatory and policy environment, take appropriate administrative action to kick start projects and revive the investment cycle. The PE industry, it added, was poised to contribute to the economy on a larger scale than before.

The survey carried out by PwC for the report indicates that most investors are optimistic about India achieving a growth rate of 6 to 8 percent over the next investment cycle with the PE industry playing a major role in it.

During the period 2000 – 2013, PE investors funded over 4,000 businesses in the country.

The report compares India’s PE investing experience with that of China and Brazil. PE investment in India and China started around the same time. Whilst investments into India grew at a moderate pace reaching $ 2.6 billion by 2005, flows into China rocketed from 2004 onwards, reaching $ 9.6 billion in 2005.

In case of China, the report said, the growth was driven by investments in the financial sector, which attracted almost two-thirds of all capital inflows, and also partly due to the beginning of local currency funds.

Between 2006 and 2008 (before the Lehman crisis), as China continued to register superlative year-on-year growth, India too witnessed an increase in investor appetite. Total PE flows to the country soared to $ 7.1 billion in 2006 and to $ 14.4 billion in 2007 as the GDP breached 9 percent for the first time. PE investment in Brazil, which was at a nascent stage during this period, crossed the $ 2 billion mark in 2008.

The PwC report said that three factors would influence future PE investments in India – stable fiscal and regulatory regime, corporate governance and political and social stability. The triggers likely to drive future PE investments were continuance of India’s consumption led growth story, realistic valuations, globally competitive businesses, rising private entrepreneurship, ability to support domestic companies going global and ability to support more innovation, it said.

In terms of sectors, respondents to the PwC survey said they believed consumer centric businesses would be their biggest focus, followed by sectors such as financial services which mirrored the overall anticipated growth in the Indian economy. The PE fund managers also expected infrastructure to be back in investment focus in the next two to three years and eventually contribute significantly to investments over the next 10 years.


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