Energy sector pips IT as PE favourite

Private equity firms’ investments in India dropped by 21 per cent to $11 billion (around Rs 52,800 crore) in 2008 compared to $14 billion (around Rs 67,200 crore) in the previous year. The number of deals has also dropped by 9 per cent to 399 from 439 during the same period.

According to Venture Intelligence, a Chennai-based private equity and venture capital research firm, with 107 investments, information technology and IT-enabled services (IT & ITES) retained its status as the favourite among PE investors during 2008. In terms of investment amount, energy topped, attracting $1.7 billion (around Rs 8,160 crore), closely followed by IT & ITES which attracted almost $1.6 billion (around Rs 7,680 crore).

Arun Natarajan, Founder & CEO of Venture Intelligence, said that 2008 was the first year since 2002 that PE investments in India have witnessed a year-on-year decline. He said things are expected to improve with pick-up in investment activity towards the second quarter of 2009 due to attractive valuations and stability returning to global equity markets. However, like in the public markets, it might take longer to return to the peak investment levels of 2007.

Natarajan said with the slowdown in investments in IT/ITeS, infrastructure, engineering and construction companies, the domestic focused sectors like media and education gained prominence in the year gone by.

PE investors concluded 22 deals worth around $578 million in the media sector in 2008 compared to $563 million through 18 deals in 2007.

Similarly, the education sector attracted investment worth $124 million, a two-fold jump over the year-ago period. PE firms are shifting their focus to sectors which are not dependent on global developments, so 2009 can see some more investments in these sectors, Natarajan added.

Among cities, companies based in South India accounted for 46 per cent of investments during 2008, while firms in western India were also active, accounting for 29 per cent of investments.

Bangalore (39 firms) and Mumbai (30 firms) were the top two cities last year. Companies based in North India constituted only about 15 per cent of the investments in 2008.