Venture capital and private equity investors reduced their exposure to India in the October-December 2008 quarter for the first time since the global stock markets crashed in January 2008. Official by capital market regulator SEBI based on disclosures by various VC and PE firms registered with it, reveals that this is largely because of domestic VC firms pulling out their investments even as foreign VC and PE firms pumped in extra $1.4 billion into the country last quarter.
Foreign VC and PE firms invest into India both through the Foreign Venture Capital Investments (FVCI) route as well as through the FII route so the exact quantum of their investment into India could be much larger.
Last quarter was particularly bad for global financial markets. As an aftermath of collapse of US I-banking business model, with Lehman Brothers declaring bankruptcy and others looking for corporate or government bailout, investors around the world started pulling out money from VC/PE funds. But, despite the severe conditions coupled with clear indications of a global economic slowdown, FVCIs brought in extra money into India.
According to SEBI data, the investment of domestic VCFs dropped to Rs 1,272 crore between September and December quarters. This was despite FVCIs pumping in extra Rs 3,196 crore into the domestic VCFs during the quarter. This means domestic VCFs reduced their own exposure by Rs 4,468 crore (~$900 million) during the quarter while FVCIs (which would include both foreign VC and PE firms) brought in another Rs 6,831 crore. Out of this Rs 6,831 crore, they brought in Rs 3,635 crore directly and the remaining was routed through domestic VCFs.
But this was not sufficient in maintaining the overall cumulative exposure of VC and PE firms in India. The total value fell from Rs 34,772 crore at the end of September quarter to Rs 33,939 crore during the December quarter end, a drop of 2.4%.
The sectoral snapshot gives an interesting picture. Real estate industry has remained at the top slot among all sectors given the cumulative value of investments by VC and PE firms. In fact, the sector saw fresh investments last quarter by domestic VC firms while the foreign VC and PE firms maintained status quo on the sector.
Other sectors where VC and PE firms (both domestic and foreign combined) upped their exposure last quarter include IT, pharma, biotechnology, media & entertainment and services. In fact, telecom and industrial space were the only two sectors where the VC/PE investors brought down their investments.
However there were some differences in the behaviour of domestic and foreign firms. Domestic VC firms upped investments in IT, telecom, pharma, biotech, media & entertainment, services, and real estate while they reduced their exposure sharply in industrial space.
Foreign VC/PE firms on the other hand bought into IT, pharma, services and reduced exposure in telecom. They maintained their positions in biotech, media & entertainment, industrial space and real estate.
The big movement came in by investment into "other sectors" by foreign VC/PE firms. Details of these other sectors are not available but as per data compiled by SEBI, while domestic VC firms reduced exposure in these other areas by around 15%, foreign funds pumped in around Rs 3,000 crore extra last quarter in them upping their exposure by around 30% to diversify their India presence last quarter.
These other sectors now account for 64% (Rs 12,749 crore out of Rs 19,800 crore) of total FVCI investment in India till December end. The same other sectors accounted for 57% of total FVCI investment in India (through the direct route) as of March 31, 2008.
Domestic VC firms already had a more diversified presence in India earlier and even though their exposure to these other sectors declined somewhat in last quarter, the overall (domestic & foreign) VC/PE firms exposure in these other sectors is now pegged at 72% of their total investments as against 62% in March 2008.