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PE funds, others snap up $10 bn Indian assets

business Updated: Aug 06, 2013 03:50 IST
Manu P Toms
Manu P Toms
Hindustan Times
Private equity funds

Deal Street is suddenly buzzing with activity. Private equity (PE) funds and some cash-rich Indian and foreign companies are snapping up businesses in this country even as the corporate sector is groaning under the burden of a crippling economic slowdown.

According to an Ernst & Young (E&Y) report, there have been 391 merger and acquisition deals in the first half of 2013 (calendar year) worth $15.2 billion (about Rs 90,000 crore) of which almost two-third were inbound deals.

In other words, about $10 billion (Rs 59,000 crore) of Indian assets have been bought and sold so far this year.

So, savvy foreign investors and many Indian companies are obviously seeing opportunity where others are seeing only economic carnage. It is also a signal, perhaps, that investors still believe in the long-term India growth story.

“Increasing clarity on the tax and regulatory front is likely to spur more inbound deals. Local deal activity is likely to be driven by restructuring and consolidation, since several domestic players have accumulated huge debts on their books,” said Amit Khandelwal, partner and national director, Transactions Advisory Services, E&Y.

According to Sanjeev Krishnan, leader, Private Equity & Transaction Services, PricewaterhouseCoopers (PwC), high interest rates and the prevailing liquidity crunch has opened an opportunity for private equity funds.

“More than the India story that we have long talked about, what drives deals are attractive valuations. With the rupee becoming cheaper valuations have become attractive for foreign funds,” said Dara Kalyaniwala, Vice President, Investment Banking, Prabhudas Liladhar, a leading brokerage firm

“For instance, a $1-million investment will buy shares worth Rs 5.9 crore today compared to a stake worth just R4.5 crore two years ago. From a foreign investors’ point of view, valuations have become cheaper by 30%,” he said.

While outlook for investments remain positive, an extended downward economic spiral can mar the script. “There seems to be hope as we set into the second half of the year. This is, however, predicated on a 6% to 7% GDP growth over the next year. A sustained slowdown can hurt investments,” said PWC’s Sanjeev Krishnan.