‘India is now the second largest recipient of PE funds in Asia’. 

Fund flow

• Japan holds the top spot in private equity flows; China slips to the third spot.
• The total number of private equity deals in India during Jan-April 2008 stood at 156.
• Global fund managers are eyeing a bigger chunk in Indian mid-cap firms.

The lull in the primary market is working to the advantage of private equity players, who are steadily cashing in on the reluctance of Indian companies to tap the increasingly volatile capital market.

The cumulative value of PE deals during January-April was pegged at $4.94 billion, way above the $3.98 billion raised through IPOs by companies during this period.

With the PE majors stepping up deals in the light of the downward correction in valuations of domestic firms, India is now the second largest recipient of private equity capital in Asia, after Japan, in terms of volume of deals done so far this year, according to data collated by Dealogic. China, where private equity firms are striking deals at a slower pace as they are raising capital, has slipped to the third place in terms of total deals during this year.

According to Grant Thornton data, the total number of private equity deals during the first four months of 2008 stood at 156, with an announced value of $4.94 billion, against 136 deals amounting to $3.42 billion announced during the corresponding period last year.

Private equity firms have pumped in nearly $18 billion over the last 15 months in 487 companies. While there are some 250-odd active funds in India, a slew of global majors such as UK-based 3i, New York-based Kohlberg Kravis Roberts & Co and JP Morgan are among those planning to increase their exposure to India.

With the blip in valuations, global fund managers are already vying for a bigger chunk of Indian mid-cap firms, which are increasingly avoiding the option of tapping the capital market for funds. JP Morgan Chase & Co is planning a private equity fund targeting the Indian mid-cap segment while Lotus India AMC, which has just launched its maiden mid-cap fund in the equity-diversified category, is in the fray for a piece of the mid-cap pie.

Renewed investor interest in this space comes in the wake of significant erosion in mid-cap valuations over the past three months following offloading by FIIs in a number of these firms. During the January-March period this year, the BSE mid-cap index was down 37 per cent to touch a price/earnings ratio of 11.3, in comparison to a 15.5 times forecast earnings for the benchmark Sensex, reports The Hindu Business Line.