With India becoming increasingly popular as an investment destination, private equity firms put in around $7.5 billion in Indian companies last year, more than three times the amount invested in 2005. Temasek Holdings Advisors India has been one of the bigger investors during this time.

Manish Kejriwal, senior managing director and country head, tells Shobhana Subramanian why he believes the India story is still a good one. Excerpts:

How important is India for Temasek?

India is critical for Temasek. We've invested in excess of $2 billion in the last three years and that probably makes us one of the biggest investors at this time.

Also, we're not a classic private equity fund, so we have the flexibility to invest in any asset class and stay invested for a long time; apart from our listed and unlisted investments, we're coming in as a limited partner in a real estate fund. We've also invested $50 million in a $100 million energy fund with Reliance.

But your investments in India have been relatively smaller than those in China.

If we had an opportunity today do a similar deal like we did in China with the banks-Bank of China for instance- with one of the state-owned banks in India, we would do that. But at the right valuation.

So are you saying that opportunities in India today are fewer because of the high valuations?

No, at an absolute level the opportunities in India are more exciting. In addition to public sector units, there are opportunities to partner with some of the country's leading entrepreneurs.

In fact, the size of the opportunities today is twice or thrice what it was three years ago when we didn't have as many companies with a relatively large market capitalisation and free float. We've bought into ICICI Bank and if we could increase our investment at the right price, we would.

Is the India growth story intact or do you see a slowdown?

I think the India story is very intact. All the more so because I see how well companies have come through the bad times, by cutting costs and developing product pipelines and R&D capabilities.

To add to that you have rising domestic demand and growing export demand, so that's a good combination. We just need to be careful that the confidence doesn't spill into overconfidence. And that's something you are starting to see a bit of nowadays.

Do you see a further P/E re-rating of the market?

If you look at the growth in earnings, it's been healthy. From that perspective we don't see anything wrong with the current valuations, though we may not agree with valuations across the board.

What's important to us are the 40 or 50 companies that we look at and many of these we think are fairly valued. In times like this when there is a fair amount of nervousness in the markets, we can be buyers because we have a very long-term perspective.

What kind of returns have you made so far?

For Temasek globally, our average returns have been about 24 per cent in 2005-06 and the year before that 16 per cent. For India, while we don't reveal the numbers, we look for around 25 per cent on an average across asset classes. For some deals, which are riskier we look for 30-35 per cent whereas for listed companies it could be lower, at about 20 per cent.

So do you exit once you've made that kind of return?

No, we don't have a force-sell. We've made more money than we expected in several stocks, because we've been fortunate. It's a rising tide that carries all boats. If we were to sell ICICI and get the cash, what would we do with it? We still have a lot of liquidity and compared to where we want to be in India, we're still underweight.

Looking back, do you think you should have invested a far higher amount in India?

In hindsight, we could have put our entire portfolio in India but we made a few calls and we're happy. If you had asked me three years back whether we would be deploying $2 billion, we would never have imagined that.

And I, coming from a consulting background, I didn't expect to be an investor from day one. We have a higher exposure in India than we expected three years ago. And, over the next few years we will be significantly increasing our exposure.

Has any company in India resisted an investment offer from you?

We're a long term and relatively benign shareholder, we're not activist. We're not a turnaround shop; in some cases we don't even have board seats. In certain cases we can be active and add value if the situation warrants. It's a small world, so if you act in an unfriendly manner to your investee company, the word will spread very quickly.

So the Shincorp telecom deal in Thailand hasn't affected your reputation in India?

No, it hasn't affected us at all; it's been a passing curiosity.

Any sectors that you think will do really well from a domestic demand perspective in the next few years?

I see three immediately. I see retail, where we don't have an exposure yet. The next is media, which is consumer demand and the third is insurance, which is part of financial services.

Do you think telecom companies today are over-valued?

You're seeing subscriber addition and at the same time there is margin expansion so you can't say they are extremely overvalued. The question is what you see going forward. The margins are expanding despite ARPUs coming off because costs per subscriber are coming off, so I think there are good things ahead.

So you don't think valuations are being driven up because there's too much money chasing too few deals?

No, I do think there's excess liquidity in the market, so don't get me wrong. In fact, we've done a few deals last year but we haven't been as active in the market at the overall level, since the markets are very expensive.

There's money coming in from all over the world. Maybe the markets will still go up, I may be wrong. But we're looking to buy our set of companies at every correction.

Do you feel like kicking yourself for any deal you missed out on in the last couple of years?

I do think we should have spent a bit more time earlier on real estate, we're a bit late. I think we'll get it right in retail though. Given the growth in the sector we will definitely take a position in the next 12-18 months.