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Eyes on India

India has been a hotspot of private equity activity so far in 2006, and investor enthusiasm continues to be strong, despite warnings of a “bubble” by some. Judy Kuan reports.

A few years ago, investors were honing in on the flow of jobs abroad to India and the impact of outsourcing on their businesses. Now, in the first quarter of 2006, much of the buzz has been centred on the rising flows of capital being directed toward India-based companies.

Just in the last two weeks, at least seven investments by international and Indian private equity funds investing in Indian companies have been announced. These range from emerging markets-focused investor Actis and its $25 million investment in Indian cement manufacturer Dalmia, to Singapore’s Temasek sweeping up a minority stake in Indian telecom services provider Tata Teleservices for a Reuters-reported $330 million.

US-based buyout firms General Atlantic and The Carlyle Group are also among the parties announcing deals, taking up stakes in a global outsourcing service provider and an Ahmedabad-headquartered pharmaceuticals manufacturer, respectively. Locally-based investors have also been active, with ChrysCapital acquiring an India IT company and IL&FS Investment Managers buying into India’s food processing industry.

Investor enthusiasm for India is evident in the public markets as well. On Tuesday, India’s benchmark share index, the Bombay Stock Exchange Sensex, rose above 11,000 points for the first time ever. The index increased 42 percent over the course of 2005, and in 2006 to date has risen 17 percent.

India’s planned move toward greater rupee convertibility later this year is expected attract even more capital from investors, while streamlining foreign exchange transactions and facilitating Indian companies’ access to foreign debt markets.

Not all investors active in India are equally exuberant about the market’s prospects, however, and some have expressed concern that the Indian market is overheated. At an Asia-focused private equity conference in Mumbai last week, Dalip Pathak, managing director and head of Warburg Pincus’ European operations told Reuters, “There could be a bubble in the making…Not every deal that is brought to the market is a high-quality deal.”

In the face of the current hype, investors would be wise to temper their bullishness on India with a measure of caution. However, it is clear that India has become firmly rooted in the consciousness of investors of varying scope and focus, and targeting a wide range of industries, and investor enthusiasm for this market is unlikely to dampen anytime soon.