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PE firms sitting on $20 billion meant for India investment

Paramita Chatterjee, New Delhi, The Economic Times

April 27, 2011

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Private equity firms are sitting on at least $20 billion of uninvested capital or dry capital that can be deployed in India as deal activity picks up and the economic recovery gains pace across the country.

"The capital overhang will lead to immense competition in the market wherein chase for high quality deals will intensify," said Sri Rajan, managing director and head of the private equity practice in India at Bain & Company, a global management consulting firm that released the India PE Report 2011 on Tuesday.

"Private equity firms who are sitting on dry capital will invest it in other parts of Asia in case if they don't do it in India," said Rajan adding that the problem of capital overhang exists even in mature markets such as the US. The amount of dry capital currently available in the industry is enough to fund all 2010 deal activity twice over.

Last year, PE firms invested as much as $9.5 billion, more than double the amount of 2009, as per the report. A host of private equity firms are also looking to raise funds to tap the growing opportunity in the country with nearly 120 private equity funds seeking to raise about $34 billion this year, according to Preqin , a research firm focused on private equity.

Investor appetite for exposure to the country's private equity market remains strong given the mammoth potential in the country across diverse sectors including banking and financial services, healthcare, infrastructure and consumer products. India saw the largest increase in deal activity among the big Asia-Pacific markets in 2010, according to the Bain report released on Tuesday.

The private equity industry was one of the biggest casualties in the global financial meltdown when investors shied away from fresh investments. Between 2004 and 2007, private equity and venture capital firms invested more than $28 billion in India, with nearly 60% of that total coming in 2007 alone.

The latter part of 2008 and 2009 witnessed a lull in terms of corporate activity, 2010 saw a sharp recovery in the domestic economy which prompted a host of private equity to exit from their investments. Private equity exited from about 120 companies to garner $5.3 billion in the year, underscoring the growing upward sentiment across the country's private equity space.

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