Private equity (PE) investors have become bearish on returns, according to a half-year survey conducted by private equity advisory group Deloitte Corporate Finance Services India Pvt. Ltd among 40 PE firms across September and October.
A majority (52%) expected returns to decrease in the next six months compared with 23% in their survey for the first half of 2007. One survey respondent, who was not named, qualified this concern by saying: “Investments made two or three years ago that exit in the next six months will do very well. More recent vintages will see more muted returns.” Also, one in five respondents expected a decrease in new funds being raised for India.
The slight cooling down in PE market sentiment largely comes from the rise in the number of PE funds in India— a phenomenon that has raised company valuations. Increasing competition has also caused PE firms to focus more on the factors that differentiate them as companies look for more than money.
Despite the outlook on returns, none of the respondents expected a slowdown in investment activity (65% expected increased activity versus 84% in the last survey).
The long-term outlook, however, mildly improved from the previous survey released in April. Results of both the surveys were based on respondents giving a qualitative rating on their confidence.
In terms of deal making, the survey said minority investments in growing companies will still vastly dominate the market. Although the respondents showed some signs of a pullback from investments in public companies (private investment in public equity, known as PIPE deals) or companies about to go public (pre-IPO deals).
The survey showed that the infrastructure sector continued to gain favour with PE investors, as did real estate and construction, although the definition of these sectors can vary from fund to fund.
Overall, their interest made sense given the large number of funds raised and being raised for these sectors by firms, including JPMorgan & Chase Co., 3i Group, Yes Bank Ltd, Blackstone Group, Baer Capital Partners (UK) Ltd, Citigroup Inc. and IDFC Private Equity Co. Ltd.