Private equity investments in India surged after 2003. While the number of investments increased from 56 in 2003 to 387 in 2007, the average deal size also increased from US$8.4 million in 2003 to US$36.8 million in 20071. Of the 903 deals struck in 2004-2007, 45 were over US$100 million in size.
The opportunities provided by the liberalisation of the Indian economy as well as the emergence of over 300 million Indian middle class, have been the primary drivers of this growth. Not only is the Indian middle class a large consumer market, the new money has also created a need for financial services – including banking, insurance services, financial management and credit services.
India is viewed as an attractive long-term prospect with rapid GDP growth (projected growth of 8.4% in 2008), favourable demographics (circa 50% of the population under the age of 25), controlled inflation (4.8% in 2007, down from 6.1% in 2006) and high domestic savings rates (32.4% in 2005-2006), along with a comfortable foreign exchange reserves position (US$213 billion in June 2007).
Furthermore, from a private equity perspective, the approximate 21% decline in the Indian stock market (BSE Sensex) in the first two months of 2008 has eased valuations of target companies for private equity investments.
