Investments to be company-specific; infrastructure to remain in focus.
Private equity (PE) players and venture capitalists (VCs) are back in the market to raise funds. Sector experts say 2010 will see these players raise $13-15 billion, almost on a par with what they raised in 2008.
PE players and VCs had raised $10-11 billion in 2009, though most of this was in the second half of 2009.
"We will see a 30-40 per cent rise in fund-raising this calendar year. We expect PE players and VCs to raise $13-15 billion," said Harish H V, partner, Grant Thornton.
"Close to 45 funds are either preparing to enter the market or have already hit the road to raise funds. While I feel that matching the level of 2007 is difficult, the year will be better than 2009," said Jagannadham Thunuguntla, equity head, SMC Capitals.
The increase reflects the growth that India Inc has continued to report even in the downturn. "Limited partners (LPs) are quite positive about India’s economy. We do not expect any change in the fee or compensation structure," said Harish.
Industry experts say the year will be governed by returns. "LPs are going to focus on returns. We think the returns will be more than 20 per cent, better than in 2009," said a banker.
"I think LPs are still trying to rework their portfolios. It will be difficult for general partners to convince LPs to invest," said Thunuguntla.
Infrastructure, consumer services, education, healthcare, financial and clean technology will be the favoured sectors, say experts.
One sector that is already in focus is infrastructure. The players are in the process of raising close to Rs 8,541 crore ($1.78billion) worth of infrastructure funds. Out of this, Rs 6,800 crore are India-dedicated funds, according to data from Preqin.
Some players looking at the sector are Axis Private equity, ICICI Ventures and UTI Asset Management Company. "Investors will become company-specific rather than sector-specific. Good sectors can have bad companies and so it makes sense to focus on companies," said Thunuguntla.
Fund-raising by VCs already seems to be gaining momentum. "I am seeing an improvement in early-stage venture funding. My sense is that things will improve from the lows of 2009 but may not touch the high that was touched in 2007 and early 2008," said Alok Mittal, managing director, Canaan Partners. Norwest Venture Partners recently raised a $1.2-billion global fund.
Says Anil Ahuja of 3i. "Fund-raising will be more selective. It will be better in 2010 than what we saw in 2008-09. LPs will be more careful in allocating capital to first-time funds. Established funds will have it easier as LPs will feel more comfortable with funds with proven track records. The number of funds that get allocation from LPs will come down significantly," said Ahuja.