JAYANTA MALLICK

Appreciating rupee, higher interest rate regime could check progress

Mr Ravi Ramanan, a certified Black Belt and Master Black Belt in Six Sigma, who was on boards of several General Electric entities in India, has recently joined Blackstone's New York - based private equity group as Executive Director. This comes after high profile appointment of Mr Akhil Gupta as MD of Blackstone Group's Asian operations. India is decidedly enjoying focus of the leading global private equity (PE) player.

But Blackstone is not alone. Baird Venture Partners, which is poised to step up its activity here, has made Mr Mohan Kharbanda its executive-in-residence of its business service team in April. Another PE group, Asia Alternatives, which plans substantial tilt towards India, has raised funds in excess of what was originally targeted. US media and communications buy-out specialist Porvidence Equity Partners has opened office here. Dubai-based fund of funds Evolvence India Fund is increasing its exposure. The list is long.

A set of money managers like Mr Vinod Khosla, a former partner of Kleiner Perkins Caufield & Bayers, or Mr Kalwal Rekhi, another Silicon Valley NRI, have, of late, decided go independent and to set up India centric VC/PE funds.

These developments are indicative of a growing trend - increasing attention for India from global PE/VC circles.

Deal street

Stock markets' relationship with private equity and venture capital universe is oblique, if not opaque.

But, in 2005 when Warbus Pincus unloaded $560 million worth Bharti Tele shares in 26 minutes flat, world got confirmation of Dalal Street's depth and maturity. Word went out that a great deal of money can be made here. As more and more players made smooth and profitable exits after IPOs of the companies they had invested, PE flows returned with vengeance.

For India so far, PE flow is a mix of FDI and portfolio investments. But increasingly private equity firms have been adapting their strategies. Investments in listed stocks are not a taboo.

Unlike in developed markets, PE firms are taking up a role of venture fund in India - more of a growth partner rather than of an asset stripper.

Between 2000 and 2005, 75 PE-backed listed stocks reported 22.9 per cent sales growth compared to 15.8 per cent by the Nifty stocks. 2007 is likely to witness higher levels of PE/VC investments as a large pool of dedicated capital that has been raised. Increased interest is also drawing PE-like global capital from large investment banks and hedge funds.

New exit options beyond IPOs and M&As are being created including exits through private placements to outside investors.

Though the size of PE flow is still not comparable with that of portfolio investments, the net effect of it on the liquidity and valuations has been positive for the Indian equities market.

Long and short

Higher GDP growth figures, early drops of rain, lower inflation growth rate are likely to keep the bull party on this week. But continued appreciation of rupee and apprehension of higher interest rate regime will rein in a seeming euphoria. Export based and interest rate sensitive sector stocks are under scanner. Institutional investors appear chary of adding extra premiums for earnings growth till clearer signals emerges from the Government and RBI. Though overall healthy liquidity is likely to protect the downside in the indices, upward movement seems capped by a general sense of uncertainty.

© Copyright 2000 - 2009 The Hindu Business Line