Dalits will benefit the most from FDI in retail, says Dalit Indian Chamber

While chief minister of Uttar Pradesh Mayawati feels foreign direct investment (FDI) in retail will drastically impact livelihoods of the dalit section of the society, representatives from the community feel otherwise.

Speaking at a Confederation of Indian Industry (CII) discussion on FDI in retail, Milind Kamble, chairman, Dalit Indian Chamber of Commerce & Industry (DICCI), said, on the ground level, the schedule castes (SC) and schedule tribes (ST) will benefit the most with this move by the government.

“Approximately 8 million new job opportunities will get generated in the next 10 years and a significant percentage of the requirement will be for semi-skilled work force. This is a huge opportunity for the dalit youth who have not been able to pursue education beyond 10th and 12th standard. With short-term training programmes with assured placement being offered by most retail chains the dalit youth will be able to get gainful employment in these retail stores as well as other support areas including logistics firms,” said Kamble.

The dalit entrepreneurs are also set to benefit from the local sourcing clause which is one of the caveats for approving FDI in retail. “Of the overall sourcing by the retailers, 30% will have to be sourced locally of which around 4% will have to be from companies run by dalit entrepreneurs. This is again a very good move by the government and will work towards development and growth of the community,” said Kamble.

Rupa Mehta, chairperson, CII (WR) Family Business Task Force, said, previous experience has shown that good small and medium enterprises (SMEs) have survived and prospered well that too in face of competition. “I do not see any reason to change this optimism. Despite concerns about small kirana shops getting impacted leading to closure, not a single store had shut down in the past five years when modern retail grew to 7% from 2%. I firmly believe that Kirana stores today will innovate and change their complexion, but not go out of business. With this policy decision, Indian SMEs will get opportunities not only in Indian supply chain but also access perhaps to global markets,” she said.

Echoing the sentiments, Thomas Varghese, chairman, CII National Retail Committee and  CEO, Aditya Birla Retail, said, mom and pop kirana stores will shut down but not because of FDI in retail. “They shutting down because their new generation is not very keen on running kirana stores and wants to explore more lucrative job opportunities that go with the current market scenario,” said Varghese.

Satish Jamdar, vice-chairman, CII Maharashtra State Council and managing director, Blue Star Ltd, said the policy on FDI in retail is the right one and in the large interest of the country. “We recognise that there are some concerns, but it is time to cut through the hype and examine and address those concerns. On the whole, we feel FDI in retail will bring in choice, quality and price benefits to the consumer while providing growth opportunities especially to the farming and manufacturing sectors. Also today the service industry is a large generator of employment. Of the service industry, retail industry will potentially be the largest employer, if we factor in the back end infrastructure support. Consumers have benefited from the modern trade so far and FDI in retail will act as hedge against inflation,” he said.

Rating agency Crisil feels foreign retailers are unlikely to gain a dominant share over the next five years and that foreign direct investment (FDI) in multi-brand retail will stimulate investment in Indian retail sector. According to Crisil estimates FDI inflows of $2.5–3 billion over the next five years is modest in the context of overall FDI inflows of $160 billion in India over the past five years.

While food and grocery (F&G) vertical would attract a larger share of the likely FDI inflows, the clause specifying 50% investment in back-end infrastructure especially aligns with the commercial requirement in this segment. F&G accounts for two-thirds of Indian retail sales, but currently has organised retail sales of only around 2%, the lowest among retail verticals.

Ajay D’Souza, head, Crisil Research, said, “To improve profitability in the F&G segment, retailers need to control their supply chain costs and build scale. Every percentage point reduction in supply chain cost and resultant gain in earnings before interest, taxes, depreciation and amortisation (EBITDA) margin can improve equity internal rate of returns (IRR) of an F&G store by 250-300 basis points. Foreign retailers, with their access to capital and technology, are well placed to leverage this opportunity.”

French group Accor to open 12 hotels next year

This story first appeared in DNA Money edition on Thursday, November 17, 2011.

French hospitality major Accor is all set to more than double the number of its hotels and guestrooms in the Indian market by December 2012. It will open 12 hotels next year, adding 2,516 guest rooms to the existing 2,016 across 10 hotels in the country.

Accor will also debut three new brands— Sofitel, Pullman and Formule 1 — taking the number of operational brands in India to six from three (Novotel, Mercure and Ibis) earlier.

Michael Issenberg, chairman and chief operating officer, Accor Asia Pacific, told DNA, “Our first Sofitel branded hotel will open for guests next month in Mumbai. The 302-room hotel would be located at the Bandra Kurla Complex. Early 2012 will see another two brands — Pullman and Formule 1 — make their debut in Gurgaon and Greater Noida, respectively.”

The new openings include Formule 1 (3 hotels), Ibis (5), Novotel (2), and one each under Pullman and Sofitel brands. These would be a mix of owned and managed properties as well as pure management contracts with different asset owners.

Accor’s hotel pipeline till 2015 includes four Pullman, 14 Novotel, five Mercure and 12 Formule 1 hotels. “Our plan is to have 90 hotels across our brands in India by 2015. While we are emphasising on the mid and economy segments, efforts are being made to expand in the upscale segment as well,” said
Issenberg.

The Sofitel Mumbai hotel is being developed in partnership with city-based realtor Shree Naman Group wherein Accor has invested $16 million (Rs71 crore) for a 40% stake. Work on the hotel started in November 2006 and was scheduled to open in 2009.

The total cost of the project then envisaged was Rs473 crore. While the two year delay has shot up the project cost, Accor officials said their holding in the asset remained at 40%.

Two more Sofitel hotels in the pipeline though details have not been yet made public.

The Pullman Gurgaon Central Park project is a pure management contract with Delhi-based realtor Central Park, which is also developing a four-star hotel at the Delhi International Airport Aerocity Project.

All the Formule 1 hotels in the pipeline (12 hotels by 2015) would be owned and managed by Accor.

“The Formule 1 hotels are positioned at the economy segment carrying the sub-Rs2,000 price tag for a night’s stay. These hotels will largely compete with brands like Ginger and offer limited services. The food and beverage facility in these hotels will be outsourced to third-party firms,” said Issenberg. Accor formed a joint venture with InterGlobe Enterprises in 2004 to set up 15 Ibis hotels with 2,700 rooms at an investment of Rs805 crore by 2007.

Currently, there are four Ibis hotels operational in the country with another five to open in 2012.

Phoenix Mills cutting down frills, takes over arms

This story first appeared in DNA Money edition on Wednesday, November 16, 2011.

Multi-use integrated property developer, Phoenix Mills (PML), has set out to cut down the clutter. As part of its business restructuring exercise, the BSE-listed company is looking to acquire controlling stakes in its subsidiaries before merging them. The idea is simple: to keep the number of arms to a minimum and avoid complications in financial reporting.

On Monday, PML said it has acquired a controlling stake in Market City Management Pvt (MANCO) from Entertainment World Developers (EWDPL) and Big Apple Real Estate Development Pvt Pradumna Kanodia, director-finance, PML, said the company will be looking to merge some of the other wholly owned subsidiaries (WoS) with MANCO.

“It is a small company with a 40% holding and has been acquired at book value of Rs 6 lakh. The company was originally designed to take care of our property management contracts (PMCs) and other activities. We realised eventually that such an entity was not required anymore and hence, we have taken 100% ownership.

Going forward, we feel reporting in consolidation will be a Herculean task with too many subsidiaries. Reducing the number of companies that we need to manage will make accounting and reporting a lot simpler,” he said. Earlier in September this year, the company had acquired Mugwort Developers Pvt Ltd. The said acquisition, according to Kanodia, was also part of the broader restructuring initiative.

In another development, PML is targeting a March 2012 breakeven for its Phoenix Market City Pune property launched earlier in June this year. With around 22% occupancy at the time of launch, the property is currently enjoying occupancy of 60-65% with over 200 operational stores giving the developer rentals of over Rs 5 crore.

“The initial response for Pune property has been very encouraging. We are targeting a profit after tax (PAT) level breakeven by this fiscal end. The current rental realisation is almost covering my interest requirement for the month. We are hopeful the occupancies will reach 90% by March 2012 and averaging at close to Rs 65 per square foot (PSF) in terms of rental value. This rental realisation will not only cover our interest but will also take care of the repayments thereafter,” he said.

PML’s flagship luxury hotel Shangri-La with the High Street Phoenix development at Lower Parel in Mumbai which was to open by now has got further delayed owing to approval related issues. While the developer (PML) has completed most of the execution work, the management now envisages 3-4 month delay in the opening. “Given the current approval related issues faced by most developers in the city of Mumbai, we now feel a March-April opening of the hotel will be more realistic as against December which was communicated earlier. It will basically start with soft launch and the entire asset should be completely operational in a couple of months thereafter,” he said.

After numerous delays since 2009, the Shangri-La Hotel, Mumbai was envisaged to finally open by the year end. Its asset owning company, Phoenix Mills Ltd (PML), had earlier planned to soft-launch the property with 50% inventory sometime in Q2 FY2010-11. However, PML ran into problems with one of its contractors as a result of which work on the project suffered until new contractor was appointed. Work on the project finally resumed towards the end of 2010 and PML management was optimistic about handling over the hotel to the management company (Shangri-La Hotel and Resorts) for a soft-launch by December 2011. However, with the new set of delays, the property is now expected to start receiving guests by March-April 2012.

Featuring 410 guestrooms and 23 serviced apartments when fully operational, Shangri-La Hotel, Mumbai will soft launch with 250 guestrooms. The serviced apartment units will however be launched in the third and final phase which is likely to happen by the end of 2012-13. 

Most of the hotel projects being developed by PML sit under a separate special purpose vehicles (SPVs). The Shangri-La Hotel, Mumbai is under Pallazzio Hotel and Leisure Ltd (a subsidiary of Phoenix Mills Ltd). The overall cost of the hotel project is envisaged to be over Rs 700 crore, of which Pallazzio Hotels has already pumped in Rs 483 crore in equity while the balance is debt.

In an earlier interaction, Shishir Shrivastava, group CEO and joint managing director, PML, had said, “We have invested close to Rs 625 crore as of now and additional investment of Rs 175 to Rs 200 crore will be made to fully complete this property. The equity part has already gone in and we are now drawing down the debt component as and when required based on the extent of work completed.”

Cox & Kings to bring in two Holidaybreak models

This story first appeared in DNA Money edition on Wednesday, November 16, 2011.

Travel company Cox & Kings (C&K) sees significant revenues coming from Holidaybreak, its recent acquisition, from the next fiscal, even as it plans to bring the UK firm’s two successful business models to India.

Anil Khandelwal, chief financial officer, Cox and Kings Ltd, said, “The contributions will come largely from Holidaybreak’s adventure and education divisions. As C&K’s existing business has a direct co-relation with these segments, we expect to improve the performance of these divisions by at least 5-7% on an annual basis. We also expect to increase capacity utilisation of the education division by 2-3% in the next fiscal.”

While the numbers may appear small, Khandelwal said, they are very significant given the large volumes at these divisions.

“This apart, we expect the revenues and profitability of Holidaybreak to improve from the next financial year,” he said.
C&K acquired the London Stock Exchange-listed Holidaybreak in July for Rs2,400 crore and payments to the tune of 310 million pounds have been made to the registrar to be paid to the Holidaybreak shareholders.

In the recently concluded (October to September) fiscal, Holidaybreak had revenues of 436 million pounds with an operating profit of 44.8 million pounds. The education and camping divisions have contributed significantly to the rise in its profitability.

“There is an increase of almost 2 million pounds in operating profit. The company has demonstrated good results, despite tough economic environment,” he said.

C&K is looking to bring Holidaybreak’s education and youth hostels divisions in India. “A lot of work in terms of evaluating and bringing these two concepts in India is being done,” he said.

Post the Holidaybreak buy, C&K has formed a committed of senior management personnel of both the companies to work on the integration plan.

While one of the big four consultancy firms has been appointed to look into the integration exercise, C&K has also brought on board a specialist who was involved with the travel company since it went public in 2009.

While C&K isn’t facing any problems due to economic slowdown in Europe and the US, its operations in Japan continue to be under pressure post the earthquake and tsunami situation there.

“We don’t see any visibility (revival of business) in the third and fourth quarters with respect to the Japanese operations,” he said.

Growing hunger for coal takes Tatas to Canada

My colleague Promit Mukherjee is the lead writer of this story, which first appeared in DNA Money edition on Tuesday, November 15, 2011.

The salt-to-software conglomerate, the Tata Group, is just not content with its substantial presence in Canada’s iron ore mines like Direct Shipping Ore and Taconite projects. Over and above the majority stake in those assets, it wants more and now has its eyes firmly set on the country’s metallurgical coal reserves, too.

The discussions are at a preliminary stage. Canadian ministry officials have let out that the group is looking at the British Columbia province of Canada for investment, which has huge reserves of metallurgical coal, also called coking coal and used for steel making.

“We are very much open to Indian companies picking up stakes in our mines and out of several companies we have spoken to, the Tata Group has shown a considerable interest to put in money here,” said Christy Clark, premier of the Province of British Columbia.

Clark is here in India for a business-cum-political visit and was in Mumbai to attend the Indian Economic Summit organised by the World Economic Forum and the Confederation of Indian Industries (CII).

Clark admitted that in this race for Canadian metallurgical coke, which is exported extensively, China seems to have the first-mover advantage and India has so much catch-up to do. In fact, citing a specific example, she said the China Investment Corporation recently picked up a 40% stake in a huge metallurgical coal mine in the province.

“China and Japan have huge interests in the region and we are also inviting Indian companies to the province as we have a gamut of opportunities for Indian companies here,” she said.

Currently, the bilateral trade between India and Canada is pegged at $2.1 billion of which a meagre $135 million comes from British Columbia.

Clark is out to change that and says she sees no reason why the figure can’t jump by a big margin over the next few years, given the promise the province holds.

Mining is just part of the bigger story. Clark has a string of meetings lined up with several business leaders in Mumbai and Bangalore over the next two days to push opportunities in various other fields like clean energy, LNG, shale gas, digital media and film, life sciences and mining. “Besides mining, British Columbia offers great opportunities in clean energy and LNG and we are keen on Indian participation in these sectors,” she said.

Clean energy - which includes hydro, bio fuel, solar and geothermal - accounts for as much as 93% of the power generation pie in British Columbia, but so far, Indian companies have been conspicuous by their absence from the scene.

Talking about what more is in store, Clark said the province has embarked on an ambitious $25 billion (Canadian) LNG project, the first part of which will come up in 2015 and the next will be ready by 2020. “Even in this project, Chinese companies have bid aggressively, but there has been no participation from Indian firms. We want companies here to come and invest in the project,” she said.

Canada is also keen to roll out a red carpet to Bollywood. “With a massive density of Indian population in our province, we want to make Vancouver the Bollywood of the West,” she added.

Currently, the bilateral trade between India and Canada is $2.1 billion out of which merely $135 million comes from British Columbia. Clark said with the number of opportunities present in the province, she wants to increase the number manifold in the next few years.

What ails infrastructure in India?

This story first appeared in DNA Money edition on Tuesday, November 15, 2011.

 - India gets about 100 hours of rainfall out of the 8,760 hours in a year, yet faces water shortage as the country has no facility to harvest rain water.
 - Despite having 500 billion tonne of coal reserves, India has tapped only 1%, even as fuel crunch pervades across power facilities.
 - Infrastructure in India is developed in such a haphazard manner that it ends up creating bottlenecks instead of facilitating smooth operations for stakeholders.

This was the theme that emerged at a seminar on infrastructure at a World Economic Forum summit, where industry participants felt that answer to the current woes lay in developing infrastructure holistically, or in totality, rather than in bits and parts.

“We waste $45 billion worth of efficiency because of our non-holistic view on the infrastructure development. This figure is expected to grow at least three times in the next 10 years,” Ravi Sharma, CEO, Adani Power, said.

Infrastructure development comprises growth in the healthcare, information technology, water, housing and real estate, education, energy and logistics industries.

James Stewart, chairman - global infrastructure, KPMG, UK, said, “While each and every sector contributes a certain level of growth, exceeding thresholds is only possible if the developments are looked at in entirety.”

Harpinder Singh Narula, chairman, DSC India, felt the government or the planners do not understand that the end user (public) has to be a participant in this. “The government can either take an inclusive or a top-down approach. However, adopting the latter leaves no possibility of taking a holistic view and that’s what we see happening in India,” he said.

Ankur Bhatia, executive director, Bird Group, said infrastructure development in India largely happens when ‘push comes to a shove’ kind of a situation.

“In most cases, we are developing infrastructure much behind of when it is required,” he said. “The aviation industry caters to 75 million people and a lot of them are repeat travellers, which mean only 30-35 million are taking to the skies in a market which is 300 million big. The primary reason is while people have the capacity to pay, a lot of destinations are not connected by flights.”

Participants also blamed government paralysis, bureaucratic stonewalling of projects and corruption for the infrastructure mess.

“The government has, by necessity, given lots of space to the private sector,” said Rajiv Lall, CEO of IDFC. “But having unleashed this genie, it has struggled to keep pace with it ... enthusiasm and skills of private developers far outpace the government’s ability to provide support.”

Ajit Gulabchand, the CMD of Hindustan Construction Cosaid there is a “huge slowdown” in infrastructure-building. “Scams have created a lull in decision-making, people are afraid to take decisions,” he said. With Reuters, adding “India has hurt itself by stalling projects.”

Infrastructure developers complain that the government has not kept its side of its bargain by failing to create a policy framework to allow the sector to grow.

“There is no sector where the policies are consistent, where policies are long term, where policies are really thought out,” said Sharma of Adani Power.

With Reuters

Companies sitting on Rs3.5 trillion cash. Albatross?

My colleague Nitin Shrivastava is the lead writer of this story which appeared in DNA Money edition on Monday, November 14, 2011.

Coal India, with cash and equivalents of Rs55,000 crore on balance sheet, is symptomatic of the story of corporates today: they are simply unable to deploy funds meaningfully, be it through investments, mergers & acquisitions or treasury operations.

So much so, cash held by companies surged by a third in the last one year to an all-time high of Rs356,452 crore as of September 30, according to an analysis by DNA.

That’s a 9.8% increase in six months and a staggering 33.71% year on year. In all, 283 companies (excluding banks and financials), which represent two-thirds of the market capitalisation of the Bombay Stock Exchange, were looked at.

“Companies have deferred investments over the last few quarters which is obviously reflecting in higher cash balances. The macro environment has been challenging with the sharp spike in interest rates and policy paralysis affecting business sentiment. Also, in these uncertain times, you need to keep a warchest ready,” said Anand Shah, chief investment officer at BNP Paribas Asset Management.

Reliance Industries, Coal India, ONGC, NMDC, Infosys and NTPC are among the biggest hoarders.

Coal India has the highest cash balance among all at Rs54,980 crore, according to the company’s results released on Saturday. The top 10 cash-rich companies contribute Rs221,168 crore to the hoard.

“The increase in cash balances reflects improvement in operating performance which has led to higher cash flows. Indian companies had undertaken huge capex some 2-3 years back, which is showing in cash flows now for some of the companies,” said the head of equities at domestic brokerage house, who did not wish to be named.

But, even as cash levels have risen, the total debt of companies continues to surge.Total loans of these 283 corporates stood at Rs11,23,244 crore as of September 30, up 16.6% over the last six months and 28.44% in the last 12. Experts believe this is not necessarily because of fresh investments.

“The rise would have been due to companies taking loans to meet higher working capital requirements and on account of higher inflation,” said Nischal Maheshwari, head of research at Edelweiss Securities.

Few capital-intensive sector companies such as Adani Power, Reliance Power, SAIL, NTPC and oil marketers are the ones which have seen substantial rise in debt.

“My sense is that a part of this money is actually debt cash. Barring IT, the cash position with a lot of other companies is on account of borrowed funds. And taking risk by deploying debt-based cash is not really what companies would want to do,” said Vivek Gupta, partner, M&A practice, BMR Advisors.

There’s a case that companies are not making full use of cash as returns on fixed deposits yield at best 5-6% post tax, compared with their net profit growth, which is multiple that at around 12-15%.

There are 68 companies sitting on net cash surplus after accounting for debt — the major ones being Coal India, Infosys, ONGC, Cairn India and TCS.

“Overall, corporates are not confident on the growth front. Demand is not improving in many sectors and margins are under pressure. The saving grace till now has been that revenue growth has been healthy, which may slowdown in the coming quarters on account of lag effect of interest rate hikes on demand and the higher base of last year. Also, higher capital investment tends to have an impact on immediate return on equity and the returns get better only after a few years, once capacity utilisation goes up,”said Shah.The capex cycle has come to a standstill and is at a trough, according to some.

“As for mergers & acquisitions (M&A), opportunities are being looked at more fundamentally. It’s not being done with the same euphoria as during the 2008 downturn. People are taking a more calibrated and deliberate call now,” said Gupta.

The Street believes the cash conservation mode will continue till the headwinds show signs of easing.

Cummins halves guidance second time this fiscal

This story first appeared in DNA Money edition on Saturday, November 12, 2011.

Cummins India, manufacturer of engines for power generation, industrial and automotive segments, has halved its growth guidance for the second time this fiscal to 5-10% as a slowdown in economy reduced orders and affected business.

Anant J Talaulicar, chairman and managing director, Cummins India, said, “We had estimated 20% growth at the beginning of the year. The guidance was later brought down to 10-15%. I’d say now that we are probably looking at a 5-10% growth across the board (domestic and exports) on a year-on-year basis. As far as profitability (PBIT margin) is concerned, we see a further deterioration of 1% sequentially.”

“The cost of money has gone up significantly and is causing some projects to get deferred. Secondly, some of the projects in the infrastructure sector are slowing down and the demand picture is not as bright as it was earlier. However, if the demand picture improves and inflation stabilises at today’s levels, the profitability will start improving,” he said.

Cummins said the most affected was its power generation business, followed by mining and construction, and added that the share of power generation in its total sales had come down to 30% from 40% earlier. The industrials business stayed flat at 12%, while auto’s share doubled to close to 10% levels. The distribution business, the company said, is about 18-20%.

The raw material costs have also increased affecting profits. The company said it has passed on increased costs from time to time in the recent past, but doesn’t see any scope for cut in prices now. Cummins plans to spend Rs200-250 crore in capex this fiscal and Rs300-350 crore in the next.

Havells to double retail outlets

This story first appeared in DNA Money edition on Thursday November 03, 2011.

Havells India, electrical and power distribution equipment manufacturer, plans to double its branded retail outlets in a bid to grow household appliance business four-fold.

The company currently has 103 branded outlets — Havells Galaxy Stores — which it plans to ramp up to over 200 in the next 12 months.

“The initial response to the home appliances range has been very encouraging, both from the end-users as well as the distributor fraternity,” Anil Gupta, joint managing director, Havells India said on a second-quarter analyst call.

The company had forayed into the home appliance business in August this year.

“A lot of our channel partners operating multi-brand outlets have expressed interest in converting to Havells branded exclusive outlets. The process has been kick-started already and we should easily achieve the targeted numbers,” he said.

Havells’ current offerings in the domestic appliance segment include products for food preparation, garment care, home comfort, cooking and brewing.

The company has earmarked a capital expenditure of `150 crore for this fiscal, of which `70-80 crore will be spent towards marketing and research and development for its small appliances range in the next 24-36 months.

“The market response during the festive season has been very positive and we are envisaging sales of Rs50-60 crore from our domestic appliances line this fiscal. The target for next fiscal will be Rs200 crore, and Rs500 crore in the next four years,” he said.

Sanjaya Satapathy, research analyst with Bank of America-Merrill Lynch, said Havells’ product expansion including the recent foray into home appliance products will help the company sustain 15-20% growth despite the adverse macroeconomic environment.

“The company has also launched new products in industrial switchgears and lighting fixtures in the first half of the current fiscal. It currently has a 6% share in the Rs3,000 crore industrial switchgear market and an 11% share in the Rs2,500 crore lighting fixture segment. Havells’ market share in these segments is below potential and these segments are also more profitable,” Satapathy said in his recent report on the company.

To enhance its penetration in Tier III markets, the company will increase its dealer network to over 6,000 from 4,000 now in a year.
The company’s net profit for the second quarter grew 16% to `81 crore as compared to Rs69.5 crore in the corresponding quarter previous year.

Consolidated net revenues grew 19% to Rs1,585 crore in July-September as against to Rs1,335 crore in the corresponding quarter last year.

Private equity deals halve as investment firms sit on the fence

This story first appeared in DNA Money edition on Thursday November 03, 2011.

Private equity (PE) investments in India continue to fall.
PE firms invested around $186 million across 15 deals in October as compared to $347 million in 26 deals in the same month last year, according to data by brokerage J M Financial. The decline in the amount invested and number of deals closed was 46% and 42%, respectively.

In the third quarter of the calendar year 2011, PE firms invested about $2,249 million across 98 deals as against $2,357 million spread over 111 deals a year ago. The third-quarter deal value was also lower in comparison to April-June, the preceding quarter, wherein a total of $2,911 million was put in across 122 deals.

While the decline is very steep, industry experts feel that generalising investment momentum based on a month-on-month data would be unfair.

Avinash Gupta, national leader - financial advisory practice, Deloitte Touche Tohmatsu I (P) Ltd, said, “I think responding to numbers registered in a certain short span is not the right way to look at the overall investment approach by PE firms. This is because one lumpy deal can completely change all the equations and things can suddenly start looking very different.”

However, Gupta agreed that slowdown in investment activity is visible and overall macroeconomic scenario globally is depressing the investment sentiment.

Gupta said there is a high level of uncertainty in the market and hence things are slow. Valuations are being impacted, particularly because interest rates and inflation levels are soaring, he said, adding, the general economic activity and slowdown in demand has made promoters of businesses unsure about their growth plans.

“Companies are still contemplating whether or not to invest in building capacity and to raise funds for it. So while there is enough money with PE firms, which are at various stages of their investment terms, they are adopting a wait-and-watch approach at the moment. It’s a mixed bag in the private investment market where we are seeing decent activity, but deal closures are happening at their own pace,” Gupta said.

However, despite sluggish investment momentum, the average deal size in October 2011 increased to $17 million as compared to $14 million in the same month last year.

The key sectors that saw PE money flow in were consumer, IT/ITeS and financial services with deal values accounting for 21%, 21% and 17% of the total investment. The data also indicated that this year PE firms increased their focus on unlisted companies with 87% of the overall deals as compared to 81% in October 2010.

Top deals in October included $32 million investment in India Infoline by The Carlyle Group, Reliance Equity Advisors’ significant minority stake in VVF for $28 million, co-investment of $25 million by NEA, Canaan Partners and Silicon Valley Bank in Naaptol Online Shopping, investment of $22 million in Max Flex and Imaging Systems by Reliance Equity Advisors and CLSA Capital’s $22 million placement in Resonance Eduventures.

In all, October 2011 witnessed three exits, the largest being $73 million by Warburg Pincus in Kotak Mahindra Bank.

While fundraising environment remained challenging, three new funds were closed, including second close of $550 million by Tata Capital for Tata Opportunities Fund.

On the other hand, two new funds were announced by KKR and SBI Macquarie, wherein the former is raising $6 billion for its second Asian Buyout Fund and the latter is planning to raise $1-1.5 billion for its second infra fund.

A senior official from one of the leading advisory firms said, “It will remain challenging for a lot of PE firms as their limited partners, or investors in the funds, now would like to see returns for their investments made in the past. PE firms which have an interesting theme and investment strategy may still be able to attract some LPs, but others will have to demonstrate performance and focus on making exits with decent returns.”