Global private equity investors seen pumping in $1 billion during 2004

International private equity investors are expected to infuse fresh capital of $1 billion in calendar year 2004, but they are hoping for better labour reforms and enforcement of intellectual property rights (IPR) in the country.

"A key problem private investors face is dealing with the labour issue as this can impact their ability to garner higher returns," said PricewaterhouseCoopers (PwC) associate director Sanjeev Krishan.

Another growing concern expressed among equity investors exploring investments in the financial sector is the 10 per cent cap on voting rights in banks.

India has been attracting new private investors, with over 20 of the world's leading US-based venture capitalists "" Battery Ventures, Sequoia Capital, Sierra Ventures, Bessemer Venture Partners, US Venture Partners "" having recently visited India in November 2003 to explore the investment opportunities.

Likewise, even as significant equity investment has gone into the pharmaceuticals sector, foreign private investors are not confident that a new product brought into the country will not be copied as there is inadequate enforcement of IPRs, said a senior official at a New Delhi-based pharma company, which recently struck a deal with a leading venture capitalist.

PWC's recent Global Private Equity 2004 report points to the low interest rates, gross domestic product (GDP) growth in excess of seven per cent, and cost competitiveness resulting in outsourcing opportunities for the Indian manufacturing and IT sectors.

The pharma sector has been a hot favorite with most private equity funds on account of the tremendous export growth potential, opportunities for clinical research and outsourcing options in the areas of research and development, as well as manufacturing activities.

"Today however, many private equity investors believe that pharma valuations have gone through the roof," said Krishan.

According to PWC's report, private equity investment grew by 91 per cent in Asia Pacific region to touch $ 17.5 billion.

What's more interesting is the significant shift of focus of Asia's private equity industry from northeast Asia (including China) to south Asia, of which India is a key component.

Warburg Pincus' decision to relocate part of its Singapore team to Mumbai is symbolic of the interest private equity investors are showing in India.

"Private equity investments in India in the past couple of years have been modest compared with major economies. However, India has demonstrated its ability to return capital to foreign investors with IRR of 25-40 per cent," Krishan said.

ChrysCapital generated an IRR of in excess of 135 per cent on the sale of its investment in Spectramind to Wipro.

Jardine Fleming and JP Morgan are equally expected to take a handsome return in the initial public offering (IPO) of NDTV. GE Capital and ICICI Venture did likewise in the case of TV Today Network's IPO last year.