India Private Equity Deals May Grow 40% in 2008

From Bloomberg this morning:

Carlyle Group, the world's second- biggest buyout firm, said India's private equity market may expand as much as 40 percent next year, even as increased competition for stakes drives down returns.

``The private equity market in India will continue to do well even as returns could come down in percentage terms,'' Shankar Narayanan, managing director at Carlyle India Advisors Pvt., said in Mumbai today. The total value of buyout agreements could reach $18 billion next year, he said.

Private equity companies invested more than $4.2 billion in India this year, taking the total value of such funds committed to the nation to $12.9 billion, according to the Asian Venture Capital Journal. India was the Asia-Pacific region's second- largest private equity market in the first half, after Australia, as the value of deals jumped 55 percent.

Executives from Sequoia Capital, 3i Group Plc, Actis Capital LLP and other buyout firms are in Mumbai for a two-day gathering to discuss how to make more profits in India as investments have become more expensive.

Buyout funds have bought Indian listed and unlisted companies on expectation of higher returns as the government forecasts expansion of about 9 percent for the year, maintaining the South Asian nation's position as the fastest-growing major economy after China.

Infrastructure Push

India is building power plants, transmission lines and substations as part of a $500 billion infrastructure plan to spur economic growth.

``I would stay invested in sectors like airports and power over the next three years,'' Anil Ahuja, managing director and co-head, Asia 3i India Pvt., said in Mumbai yesterday.

Buyout companies could invest more than that amount in India next year, amid soaring valuations, raising their bets on the world's second-most populous nation, said Sumir Chadha of Sequoia Capital, the venture firm that made billions of dollars backing Google Inc.

``Most deals are getting done at very high valuations,'' Chadha said. ``There is just so much money chasing deals now.''

A five-year stock rally has made it difficult for private equity firms to realize higher profits in India.

New York-based Warburg Pincus LLC earned about six and a half times its original investment when it sold shares in Bharti Airtel Ltd., India's biggest mobile-phone company, in 2005.

``Returns that we saw in 2003-2004 will be very difficult to replicate next year,'' said Darius Pandole, partner at New Silk Route Advisors Pvt., which raised a $1.3 billion fund to invest in Asia this year. ``The market is hot and investors want to deploy money now.''