In a bid to recover from the global slump and take the least hit in any other such situation, the private equity entities and venture capitalists have shifted focus to domestic consumption and related sectors that are largely delinked from the international financial turmoil. Having started their activities from second quarter (June-September) onwards, the deals are expected to touch the 2006-level of $8 billion during calendar year 2010 and over $4 billion in calendar year 2009. Sectors such as banking, financial services, insurance, telecom, IT/ITeS, education and energy will attract investments, highlights Arun Natarajan, CMD, Venture Intelligence, India?s leading research firm focused on PE and M&A deals, in an exclusive interview with FE?s R Ravichandran. Excerpts:

What impact did the global slowdown have on investments from PEs/VCs?

The global meltdown has had a cascading effect on PEs/VCs over the last one year or so. The PEs/VCs largely depend on US capital and have been finding it difficult to raise funds to invest in fast developing countries like India. However, one would see a modest revival since the second quarter of CY 2009 (June-September). As compared with 480 deals with $13.68 billion investment in 2007 (a peak year), the PEs/VCs expect to end CY 2009 with around 220 deals involving investments of approximately $4 billion. During CY 2008, the total investments from PEs/VCs into India are estimated to be around $10.8 billion with 447 deals. As compared with June to October, 2007, investments of $10.13 billion, India has attracted only $2.75 billion during the same period in CY 2009.

Recent reports suggest a revival of activities for PEs/VCs in India. Your comment?

Yes. One would see revival of PEs/VCs activities and investments from Q2 2009 onwards. This is owing to the recent turnaround in global markets which, in turn, made US fund houses to honour the draw-down commitments made to PEs/VCs in a more cautious manner. This is evident from the fact that as compared with the first quarter (January-March 2009) investments level of $647 million with 48 deals, India has witnessed a sharp rise in the PEs/VCs investments during the second quarter (April-June 2009) with $975 million over 49 deals, in third quarter (July-September 2009) the investments were estimated to be around $800 million over 51 deals and the fourth quarter will witness equally good investments from PEs/VCs.

How would the activities of PEs/VCs in India change post the meltdown and why?

As the new fund raising scenario remains murky, the PEs/VCs will adopt a cautious approach and are expected to be choosy regarding sectors for potential and better return on investments. With global pools of capital having dried up temporarily, one would witness PE/VCs attempting to tap domestic pools of capital. Also, the mix of sectors attracting PEs/VCs investments has changed in favour of domestic consumption focused ones that are largely delinked from the international financial turmoil.

What kind of investments can India Inc expect in the short term as well long term?

While it is unlikely that PEs/VCs investments touch heights of CY 2007, we can expect these to reach 2006 level of 338 deals with $8 billion investments during calender 2010, provided there are no serious external shocks.

Where does India stand in terms of attracting investments from PEs/VCs?

In our understanding, India is among the largest recipients of PE-VC investments among developing countries.

Which sectors would attract investments?

Education, micro-finance and logistics sectors have evinced investor interest even during the difficult period between October 2008 and March 2009. Sectors which have been attracting and expect to attract investments in future include BFSI, education, energy, IT/ITeS, hotels/resorts, healthcare and life sciences among few others. For the period January-October 2009, IT/ITeS sector has attracted over $550 million investments with 49 deals, followed by BFSI with $452 million (23 deals), telecom with $291.3 million (5 deals) and energy with $353 million (11 deals).

Which regions in India are attracting maximum investments from PEs/VCs?

Southern region has received a significant share of the PES/VCs investments in 2009. In general, south and west compete for the maximum share in PEs/VCs investments. While south has attracted deals worth $953 million through 76 deals till October in CY 2009, the west has attracted deals worth $994 million through 56 deals. North holds the third position with $809 million investment through 26 deals.