While foreign portfolio investors have been selling stocks of Indian companies, overseas venture capitalists continue to invest in Indian assets.
In a sharp contrast to foreign institutional investors (FIIs) selling shares worth Rs 15,000 crore in the first quarter, foreign venture capital (FVC) investors have invested close to Rs 17,000 crore in Indian assets during the April-June quarter.
The spurt in foreign venture capital investments has been attributed to dipping asset prices, the presence of more India-dedicated venture funds, besides the slide in the stock market. While IT companies continue to account for a majority of foreign venture capital investments, the proportion of non-IT investments, both by activity and value, has gone up.
Sebi’s data shows that FVC investors have invested Rs 1,545 crore in various IT firms in the first quarter of the current fiscal. Real estate and the services sector have received Rs 1,424 crore and Rs 1,259 crore, respectively, in the first quarter. FVC investments are increasingly focusing on alternative energy, media, retail and other consumer demand-led sectors as well. This is at variance with foreign equity portfolio investors, who have been drastically reducing their holdings in manufacturing concerns, real estate companies and telecom set-ups.
According to Navin Wadhwani, director at investment bank NM Rothschild, “FIIs invest only when stocks gain some sort of an upward momentum; they also make it a point to exist when the downturn starts. FVC investors invest in assets when prices cool off, but they hold on to their investment for a longer term. Indian assets have become more appealing with capital markets trending down and valuations becoming more realistic”.
According to Dow Jones VentureSource India Venture Capital Report, venture capitalists invested some Rs 3,712 crore through 80 deals in 2007. As a matter of fact, FCV investors, alone, have surpassed last year’s net venture capital investments in flat three months. Overall venture capital investments (domestic players included) during the first quarter is pegged at Rs 32,379 crore.
According to Axis PE CEO Alok Gupta, Mr Gupta added, “Compared to Europe and the US, India is becoming an attractive destination for overseas investors. The investment market in Europe and the US has been wiped out because of subprime and a probable slowdown; their mainstay — the leverage buyout market — is virtually dead. Growth investing is becoming more popular as opposed to leverage funding among global investors”.
The fall in the stock markets has also done a world of good for venture capital investors. With the average six-month stock price (calculated while making stake placements in a listed company) coming down drastically, investors are able to find good deals in publicly-listed companies as well, industry officials said. Estimates show that of all Indian companies that received venture funding in 2007, nearly 73% are already generating revenues or are profitable.
Arun Natarajan of Venture Intelligence said, “Funds with global mandates have always dominated the venture capital segment. By value terms, over 50% of total venture capital inflows originate from global funds; India-dedicated venture funds account for the remaining portion”.
Mr. Natarajan added, “From what we understand, on contrary to late-stage investments, which could dry up if there is a persistent global recession, venture capital investments will continue for a longer term. This is because there are more than a hundred overseas funds that only has the mandate to invest in India”.