Private equity investments in India are expected to more than double to $3 billion in 2005, with a large part going to the outsourcing sector that is growing at 30-40 percent a year, a fund manager said on May 11. Automobile parts makers, health care firms and companies that offer services such as call centres to accounting could maintain their robust growth as Western firms move businesses to India to cut costs, said K.E.C. Raja Kumar of UTI Venture Funds. India's business outsourcing sector has been booming because of the country's large army of highly skilled, English-speaking workers who are paid a fraction of the salaries their counterparts earn in the United States and Europe.
Big profits made by early venture capital investors in India are also luring more players to the world's fastest growing major economy after China, said Kumar, chief executive of the fund that has $130 million in assets.
"Recent large exits and realisations have created a high level of comfort," said the former Indian Revenue Service officer, who had also worked with the market watchdog, Securities and Exchange Board of India.
Warburg Pincus, which paid about $300 million for an 18.52 percent stake in Bharti Tele-Ventures Ltd before it went public in 2002, has pocketed $1.08 billion from selling 12 percent in the second-largest mobile operator in India.
Kumar said the prospect of high gains would lure more private equity funds to India.
"In the next five years, India can attract more than $15 billion," he said.
Foreign portfolio investments in India's stock market have more than doubled in the past two years to $36 billion, and now account for a tenth of the market's capitalisation, which has trebled over two years.
In 2002, UTI Venture Fund invested about $1.5 million for a 7 percent stake in Subex Systems Ltd, Kumar said. The holding in the telecoms software firm is now worth $7.5 million.
The fund has a 13 percent stake in unlisted Glenmark Laboratories Ltd, which has made inroads in contract manufacturing. The company is expected to go public soon, having recently acquired Tasc Pharmaceuticals Ltd.
UTI Venture, which paid $2.3 million for the stake a little less than a year and a half ago, now estimates the current value at about $20 million, Kumar said.
Its Ascent India Fund, which targets sectors benefiting from the outsourcing trend, namely healthcare, technology, textiles and auto components, has raised about $100 million since its launch last month, Kumar said.
The new fund's investments include some $3.7 million for nearly 15 percent of Ambika Cotton Mills Ltd, which is expanding its high-end yarns output. Indian textile firms are expected to gain from the dismantling of the quota regime.
Private equity funds, which topped $1.3 billion in 2004, will get a boost with the property sector becoming the latest destination, Kumar said.
ICICI Venture Funds Management Co, part of the ICICI financial services group, recently earmarked $300 million for investing in the emerging real estate sector.
UTI Venture expects to raise $80 million this year for investing the property sector, Kumar said.
"Globally, this asset class has delivered higher returns over a longer time frame," he said, adding that private equity funds typically looked for returns of more than 15 percent a year over some 20 years.
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