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Private equity investments in India could reach USD20bn by 2010, says report

If current trends continue, India will receive USD13.5bn in private equity funding this year, ranking it among the top seven countries in the world, and investment could rise to almost USD

If current trends continue, India will receive USD13.5bn in private equity funding this year, ranking it among the top seven countries in the world, and investment could rise to almost USD20bn in 2010, a thousand-fold increase from USD20m investment in 1996, according to a report by research and analytics firm Evalueserve.

In a new report, An Indispensable Guide to Equity Investment in India, Evalueserve claims that more than 366 investment firms are currently operating in India and another 69 are planning to start operations soon, having raise or being in the process of raising funds.

In total, Evalueserve says, these private equity firms have amassed some USD48bn earmarked for investment in India between July this year and December 2010. ‘Several firms that we talked to mentioned they would be willing to invest even more if they saw good investment opportunities,’ says chairman Dr Alok Aggarwal.

‘This stands in stark contrast to 1996, when Indian companies only received a total of USD20m. If Indian companies do receive USD20bn in funding in 2010, this would represent a stunning thousand-fold increase over a period of 14 years.

The report says that beyond the tech-heavy activity that has driven much investment in the past, earlier investment opportunities, private equity and venture capital firms are now aggressively looking to invest in new areas such as manufacturing, financial services, healthcare, real estate and construction.

However, Evalueserve cautions that a solid understanding of the unique Indian market and some behavioural adjustments will be required from investment firms that are new to India. In addition to the capital, proper research in a challenging market, subtle managerial skills and a healthy dose of patience must also be invested to ensure success, the report says.

Private equity firms are notably focusing on three broad areas, the report says, including fields that are experiencing rapid growth worldwide such as IT, business process outsourcing, drug research and clinical research outsourcing and engineering services; Indian domestic market sectors such as retail, travel and hospitality, healthcare, entertainment and education; and manufacturing and infrastructure industries including automobiles and automotive components, electrical and electronic components, and specialty chemicals.

Evalueserve notes that investment opportunities are set to arise for private equity and venture capital firms as well as hedge funds as the government opens the banking sector to competition and liberalises other sectors, such as metals and mining, utilities and capital goods. But the firm cautions that investing in Indian family-run businesses will require different management techniques and patience.

Evalueserve offers investment research, business research, intellectual property and legal research, market research, and data and financial analytics to clients worldwide. Founded in 2000, it has operations centres in India, China and Chile. Nitron Circle of Experts, a recently acquired subsidiary, is an independent research firm that provides institutional investors with direct access to a network of senior industry executives in a wide range of industries.

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