New Delhi: International Finance Corp. (IFC), the private-sector investment arm of the World Bank, is shifting its investment focus to companies in smaller towns and cities, as firms in top Indian cities get increasingly expensive.
IFC believes India’s next growth story will be played out in the fast-growing, second- tier cities such as Coimbatore, where it’s piling money into medium-sized companies.
“Medium-sized companies in smaller towns and cities are involved in good profitable projects. These companies require long-term funds and advice that are not as readily available as they are to larger companies,” said Anita George, chief investment officer of IFC South Asia. “We want to invest where we are needed most.”
Since 1956, when it started investing in projects in India, IFC has spent about $3.3 billion buying up stakes in as many as 210 companies, including Bharti Teleservices Ltd and Titan Industries, maker of watches and jewellery.
In fiscal 2007, IFC has invested $500 million (Rs2,300 crore then) in small and medium projects in the country, the bulk of it in mid and small companies such as Suguna Poultry Farm Ltd, a supplier of poultry to bulk buyers, and car-component maker LG Balakrishnan & Bros. India is IFC’s fourth-largest investment destination.
With competition for deals heating up in the big cities, IFC is taking the next logical step by serving the lesser-tapped markets, said Arun Natarajan, head of Venture Intelligence, an industry tracking firm.
A report by Venture Intelligence shows that private investment in listed companies fell to 22% of the 92 venture capital deals in 2006, from 34% in 2005. It did not have comparative data on the rise in the value of assets in the top cities.
“Competition for deals is very high in the large cities,” said Natarajan. “Even pure financial players find it difficult to invest in large cities. A few of these players are now looking at moving away from tier-I to tier-II cities.”
In the case of IFC, the investment arm also has a broader social and economic agenda than just returns on investments.
“IFC is a different kind of investor compared to other pure financial investors. They have a social agenda,” said Natarajan. “Five years back, IFC was one of the very few private equity players in India to invest in companies like Bharti. ”
Its focus has traditionally been on companies that do not have easy access to long-term funding.
“Our job, as a multilateral institution, is to seek these out and play the role of a strategic investor and advisor to strengthen their competitiveness and help them become environmentally and socially more responsible,” George added.