Private equity investment activity in India is set to witness a significant decline over the next 12 months, as fund raising expectations have turned more cautious over the past year, a survey says.
According to global consultancy firm Grant Thornton's Global Private Equity Report 2012, private equity firms around the world are bracing for tough conditions for both fund-raising and deal making and the most dramatic decline in optimism from 2011 is evident in the BRICS: Brazil, Russia, India, China and South Africa.
This year, 78 per cent of respondents in the BRICS economies described the fund-raising outlook as "negative" or "very negative". In 2011, the figure was 39 per cent.
"Private equity in emerging markets is challenging because of the governance risks and the absence of deep capital and M&A markets to enable exits. An understanding of the local situation is key to success in these markets," Grant Thornton in India partner, corporate finance Harish HV said.
There were fund-raising fears in the global sphere as well, as nearly three-quarters (72 per cent) of general partners described the fund-raising outlook as either "negative" or "very negative". In 2011, it was 46 per cent.
The report further said many private equity executives expect both China and India to suffer a decline in deal activity in the next 12 months, indicating a dramatic turnaround in sentiment for both countries.
In 2011, 78 per cent of respondents expected investment activity in India to increase, with the remaining 22 per cent expecting it to remain steady. In a sharp contrast, this year, 45 per cent expect it to decline.
"India has fallen from its high pedestal of being one of the markets where fund raising was considered easy," Harish H V added.
The fund raising figures show a high percentage of negativity since the survey was conducted between June and September where some of the new reform measures were not announced.
Indonesia, Peru, Colombia and Turkey top list of new "high growth" markets where private equity is likely to see the most opportunities, the report said.
The report, which provides insight into private equity general partners' expectations for numerous aspects of the fund-raising and investment cycle covered 143 top executives and was carried out between July and September 2012.