Private Equity Funding in India – Issues and Challenges
Krishna business school kanpur
India is the largest democracy in the world. Its main strength is availability of abundant skilled and cheap manpower. The country has been on growth trajectory in all fields as a planned economy thus becoming a safe and attractive destination for foreign investment. Currently, in terms of Purchase Power Parity, it is the fourth largest economy and tenth most industrialized country in the world. Successive Governments had taken major initiatives for industrial development, simplification of investment procedures, enactment of investor-friendly laws, liberalization of trade policy, safeguards of intellectual property rights, liberalization of exchange regulations, reforms in Capital and Stock Markets, etc. Ever since Indian economy underwent series of reforms from 1991, there have been progressive steps in banking, finance, industry, investment climate, incomes, employment, legal environment, etc. India is shining with an average growth rate in GDP at about 9% pa. Investments from FIIs, increased FDI in several sectors, surging Foreign Exchange reserves, controlled inflation rate, deregulated interest rates, etc., have been witnessed in recent years. GOI recognizes the key role of FDI for economic development and as an important source of technology and global best practices. Capital Market has undergone dramatic changes, with SEBI as regulator, yielding returns to all segments of investors – retail or wholesale. Information Technology is playing a vital role in effective functioning of all the players.
2. Private Equity
Private Equity, which is a sub-set of Venture Capital, is medium to long-term finance provided in return for an equity stake in potentially high growth unquoted companies. This informal method of financing became an industry globally in the late 1970s and early 1980s in the advanced western world when a number of private equity firms were founded and recognized as asset class. Throughout 1990s the technology hype, internet boom and massive capital investment propelled the New Economy revolution, but internet mania in the late 1990s caused IEC stocks to skyrocket until the dot com bubble burst in March 2000. Even though SEBI formulated guidelines for VCs on the basis of KB Chandrasekhar Committee, as on date there are no clear cut guidelines for Private Equity investment. In the post-reforms era, there is availability of abundant P E funds in India in almost all sectors including Technology and SME too surpassing certain Asian countries like China. GOI, CBDT, DIPP, SEBI and RBI are closely watching the phenomenon of inflow of PE Funds into Indian industries. Bottom of Form US-based PE outfit, Argonaut is investing around Rs.50 Crores in menswear brand Koutons to fund its expansion plans. E-Planet announced a second global fund, which will have allocations for India. A Report on Venture Capital (VC) investment in India seems to be very bullish on the prospects and has estimated that as much as $4.4 billion will flow into India via VC funds over the next one year. Government of India is in talks with top global PE funds such as Citigroup, Blackstone, and other Institutional investors to team up and raise $7.0 Billion through a special fund to finance a stream of infrastructural projects. The above deals made the authors attempt to study recent trends, developments, issues and challenges with regard to Private Equity in India to sustain the current scenario.
2.1 What is Private Equity?
Private Equity is medium to long-term finance provided in return for an equity stake in potentially high growth unquoted companies. Some commentators use the term “Private Equity” to refer only to the buy-out and buy-in investment sector. Others, in Europe but not the USA, use the term “Venture Capital” to cover all stages, i.e. synonymous with...
References: 1. Chaze, Aaron (2006), “Private Equity Investing in India Shifts into High Gear”, Global Finance; March, Vol. 20 Issue 3, p10-10
3. Dossani (2003), “Reforming Venture Capital in India: Creating the Enabling Environment for Information Technology”, International Journal of Technology Management; Vol. 25 Issue 1/2, pp151-165
5. Erica Duecy (2006), “Money to Grow – Chains Show Acquired Taste for Upstart Brands”, Nation’s Restaurant News, 16th Oct., pp.132-134
7. James McGovern (2006), “An Overview of Private Equity: Evolution of the Asset Class, Rationale and Considerations for Investing and Keys to Success, Franklin Park, Feb.
8. Kautilya Shastri (2005), “Indian Private Equity Takes a Wider View”, Euromoney, 00142433, Nov., Vol. 36, Issue 439
10. Li Shan (2006), “Toward Financial Efficiency”, Far Eastern Economic Review; Nov2006, Vol. 169 Issue 9, p50-53.
11. Palmeri, Christopher, Sasseen, Jane (2006), “Private Equity: A Bid Too Far?”, Business Week, 00077135, 16th Oct, Issue 4005
13. Rakesh Mohan (2006), “Economic Reforms in India: Where are We and Where Do We Go?”, Lecture by Deputy Governor, Reserve Bank of India at a Public Seminar organized by Institute of South Asia Studies in Singapore.
14. Rosenbush, Steve (2006), “The Money Behind the Private Equity Boom”, Business Week Online, 11th Oct.
15. Mishra, A.K. (2004), “Indian Venture Capital Industry – Testing Times Ahead”, ICFAI Reader, Jan., pp.12-18
17. Nelson Vinod Moses (2006), “Technology’s New Entrepreneurs”, Business World, 2nd Oct., pp.28-41.
18. Sanjay Anandaram (2004), “Venture Capital: The Writing on the Wall”, ICFAI Reader, Jan., pp.19-21
20. Snigdha Sengupta (2006), “The Dark Horses”, Business World,15th May, pp.14-15
22. Snigdha Sengupta (2006), “The New World of Private Equity”, Business World, 14th August, 2006, pp.16-17, pp.30-46.
24. Smolarski, Jan et. al. (2005), “Risk Management in Indian Venture Capital and Private Equity Firms: A Comparative Study”, Wiley Periodicals, Inc.
27. Subhash, K.B. (2006), “How to Teach the Big Baby to Walk: Case of the Indian Venture Capital Industry”, Journal of Private Equity; Fall, Vol. 9 Issue 4, pp.76-91
29. Walker, Jacqui (2006), “Super Funds Spurn Venture Capital”, Vol. 28 Issue 42, pp.61-61
31. Zaczkiewicz, Arthur (2006), “Private Equity Firms Let the Good Times Roll”, WWD: Women 's Wear Daily; 15th Nov., Vol. 192 Issue 103, Special Section pp.30-30.
Please join StudyMode to read the full document