On spotting a private equitys presence in a stock, stay in the stock

Updated: Sep 30 2007, 08:08am hrs
Private equity in India has come a long way. Their bullishness on two core sectors, namely the real estate and IT and ITES has been quiet evident considering their selective investment in these sectors. Saurabh Srivastava who chairs the Asia Pacific Venture Capital Association, the apex body for VC Associations of all countries in the APAC region, gives his perspective on Private Equity (PE) growth in India and how a PEs presence impacts a companys fundamentals. He spoke with Rajesh Naidu of The Financial Express. Excerpts:

In your opinion, does a presence of a private equity make a company a lucrative bet

Private equities are very smart entities. They study the intrinsic value of a company, over a fixed period of time, before entering it. They gauge and need much more value in a company. Eventually what one sees is creation of value in the company in which a private equity enters.

Also it has been seen that as soon as a private equity enters a stock, its price in the markets takes an upward trend. And herein investors need to be aware. As soon as they know a private equity has entered, they should regularly track the movement of the stock and eventually decide what is the right price for them and book profits.

Herein investors need to check in the share price history of the company because they will gauge the change in the movement of the stock price. On the whole, it is seen that a company backed by a private equity does better than a company not having a private equity presence.

What are the cues an investor must draw when a private equity enters a stock

As an investor when you see a private equitys presence in a stock, you need to stay in the stock. Most private equities guide the value of a company within a course of time and you need to cash out as soon as you sense a peak in the stock.

More so, as an investor you also need to check whether the company has an intrinsic value or not. Mostly, you must look at two crucial things when a private equity enters a stock. First, whether the company is well managed and has alot of promise and secondly, what is the crucial reason behind the private equity entering the stock. And herein lies a constant study and tracking of a company in order to reap benefits.

Ideally, when a private equity enters a stock, does it take into account the fundamentals of the company or it is the industry to which the company belongs that matters to them

I would say it is the fundamentals of the company that private equity holds in chief importance. But one must also understand that being a smart player, they never rule out the industry aspect of the business. In fact, it is their strong and authoritative research that private equities do before entering a stock, which pays them off in the long run.