TPG Partner Vivek Paul: A big catch. Paul will scout for opportunities in IT and life sciences

Here's an anecdote that should reassure those who are still tentative about the "India Story". Last year, when Blackstone, a New York-based investment and advisory firm with $14 billion (Rs 63,000 crore) in private equity corpus, decided to invest outside its traditional markets of the us and Europe, it called in a bunch of consultants (including McKinsey, Citigroup, and Goldman Sachs, among others) for their take on the BRIC (Brazil, Russia, India and China) economies. The conclusion that Blackstone reached: Of the four high-growth markets, India provided the best opportunity. Apparently, two of the factors that went in favour of India were its political system (stable democracy) and a pluralistic society, which seemed to represent the direction in which the world was headed. (The fact that a large chunk of Blackstone's research analysts is Indians also possibly added to the group's comfort with the decision.) By September, Blackstone was talking to Mukesh Ambani lieutenant and Reliance Industries and Infocomm chief for corporate development, Akhil Gupta, and by May 16 this year, it opened an India office, with Gupta as Chairman and $1 billion (Rs 4,400 crore) to invest in the country. Says Gupta, an engineer from IIT Delhi and an MBA from Stanford University: "My argument (for taking up the job and asking for $1 billion in commitment) is simple. Look at China, where the savings rate is upwards of 45 per cent, and look at India, where we are about 25 per cent. Savings are what drive growth, and to grow India needs capital... growth capital."

Growth is indeed the operative word when it comes to India. And suddenly, nobody in the world of private equity (PE)-funds that invest long term in equity to grow companies-needs to be convinced to come to India. This year alone, three other private equity investors for whom India's $1.7-billion (Rs 7,480-crore) market would otherwise be too small to merit any significant attention, have opened India offices (see The Newcomers). 3i, a big player in Europe, roped in Anil Ahuja from J.P. Morgan Partners Asia in March this year as its Managing Director for India. The Carlyle Group, a powerful Washington, D.C.-based firm that has had premiers of countries (including George Bush Sr and John Major) as its consultants, poached Dalal Street's top dealmaker, Rajeev Gupta, this June from DSP Merrill Lynch to be the head of its India buyout team. Less than a year ago, it had got Shankar Narayanan from Hathway Investments to lead its venture capital (VC) business in the country. Another big investor, Texas Pacific Group, made a spectacular splash by snagging Vivek Paul from Wipro. Except that Paul will be based in the US, he's been entrusted with the task of finding investment opportunities in it and life sciences, both in Asia and globally. Says Ashish Dhawan, Senior Managing Director, ChrysCapital, a Delhi-based investor: "Global funds are following a natural course-from the us and Europe to Asia. India is finally on the radar."

Carlyle India's Rajeev Gupta: A Dalal Street veteran, Gupa will do big-ticket buyouts in India

For investors long used to stagnant markets (growth, believe us, is an emerging market luxury), India is virgin territory. About a decade ago, private equity was virtually unheard of in India, and the market was less than $20 million-big. Today, it is 80 times bigger, but that still only means $1.75 billion-which is possibly how much a Blackstone or a Carlyle would invest in one, at the most two, deal in markets like the us. So, there's scope for plenty of deal making. Says Rajeev Gupta of Carlyle: "Look at this way: At $600 billion (Rs 26,40,000 crore) India's GDP is growing at 7 per cent a year, so there is $40 billion (Rs 1,76,000 crore) of growth to be financed. From this, take out agriculture, administrative services and small and medium enterprises, which probably need $15 billion (Rs 66,000 crore) to grow at 7 per cent. That still leaves me with $25 billion (Rs 1,10,000 crore) of growth to fund in the corporate sector. That's my market; it's what I look at every morning."

Given that there aren't too many economies around the world that are growing at 7 per cent a year, every alternate asset (which is how the seriously rich view PE) investor wants a piece of India. Fund raising for India has become a cakewalk and not surprisingly, therefore, there are more than a dozen funds that have been either just raised or being raised. "There's a new fund every week in India," quips Manish Kejriwal, Managing Director, Temasek Holding Advisors India, only half in jest. Adds K.P. Balaraj, Managing Director, WestBridge Capital Partners, which is said to be raising a second fund in the range of $150-200 million (Rs 660-880 crore): "Raising money has become much easier for India funds because the market has delivered."

Blackstone India's Akhil Gupta: He told Blackstone he wouldn't join unless it could commit $1 billion	Warburg's Rajesh Khanna: His fund turned a $300-million investment in BHarti into a $1-billion bounty

To some perceptive global investors, India has been a happening market for a few years now. What's helped convince the sceptics, though, is the series of spectacular exits that a lot of the PE investors have managed in the recent past. The most dazzling example: Warburg Pincus' partial exit in Bharti Tele-Ventures, where it turned a $300-million (Rs 1,410-crore then) investment (done between 1999 and 2001) into more than $1 billion through the open market sale of its holdings in three tranches between August 2004 and March 2005. Warburg still owns a shade under 6 per cent in Bharti, and that's worth another Rs 3,192 crore ($725 million) at current price. Other two big exits, although vastly smaller in comparison to the Bharti example, have actually involved Actis, a London-based private equity investor in emerging markets. It sold its stake in UTI Bank for $35 million (Rs 157.5 crore) in July 2004 and IDFC via an IPO this July for $56 million or Rs 246.4 crore (however, there were other investors in the deal such as GIC, IFC and AIG). Says Donald Peck, the firm's Delhi-based Managing Partner for South Asia: "Significant exits started only two years ago (middle of 2003), which got investors interested in India, and funds, as you can see, got their act together this year."

ICICI Venture's Renuka Ramnath: She runs easily the most innovative private equity fund in the country

Where will all this money go? In a wide swathe of opportunities, ranging from start-ups (funds like WestBridge Capital and JumpStartUp still do VC funding) to private equity to pipe (private investment in public equity, that is, listed companies) to buyouts to purchase of distressed assets (there's plenty of it in India) to real estate. Says Renuka Ramnath, Managing Director & CEO, ICICI Venture: "Frankly, there are so many opportunities in India that the kind of deal you can do is only limited by your own imagination." Ramnath should know. In a unique deal earlier this year, ICICI Venture agreed to fund the launch of generic drugs in the US by Dr Reddy's Labs. One reason why funds will be broad-based and not so much sector-specific is the nature of the Indian economy. It is still a developing economy and, therefore, there aren't too many companies that need even $100 million (Rs 440 crore) in growth capital. Says Vishal Nivetia, CEO, GW Capital (of GE Capital's Gary Wendt fame): "In terms of opportunities, two types of companies will likely get funded: One, companies that have significant market share domestically and, two, ones that are tapping global opportunities."