Private equity: emerging opportunities in India

Abstract

The Private Equity and Venture Capital firms are the institutional investors to whom private placements of equity is made. Private Equity or PE as it is called is typically involves investment in a company under transformational, value-added, active management strategy to earn superior returns on the investment. Private Equity investments have been in news in India off late but they have been present in India from past few decades though there presence compared to today was miniscule. Domestic financial institutions like Industrial Finance Corporation of India (IFCI), Industrial Development Bank of India (IDBI), and ICICI Bank were some of the few private organizations that provided any Venture Capital or Private Equity capital before 1995, and the actual investment made by them was also negligible. During the last 10 years PE investment in the country has been growing at a rapid rate. This has helped the Indian companies to gain access to capital requirement and also guidance and expertise that some of these PE firms provide to the investee companies. The study covers the process of value addition by Private Equity firms. It mentions factors like opportunity identification, and industry expertise other than factors like aligning management and owner s interest alignment as some of the ways of value addition by Private Equity. The same is explained with two case studies of Warburg Pincus- Bharti and ICICI Ventures- Subhiksha. The Indian economy has been evolving rapidly over the past few years and the attractiveness of various sectors for investment has been changing. Last decade was mainly IT and similar businesses. But the study identifies Banking and Educational Services as sectors that can provide investment opportunities to the PE firms operating in the Indian market.