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November 10, 2008

"Infrastructure investments will lead recovery"

Pankaj Dhandharia, Partner,Transaction Advisory Services, E&Y writes in The Economic Times how pent up infrastructure demand and attractive valuations will lead a slow-but-steady pick-up in PE investments.
With significant investment needed, the Indian infrastructure segment offers great opportunity. There are several infrastructure projects which are yet to achieve financial closure. As the valuations correct, infrastructure deals will attract investors. Similarly on industrials, several expansion projects have been put on hold because of the scarcity of capital and the uncertainty as to when demand growth will start to pick up again.

As demand picks up and liquidity improves, these projects will come back. The activity is likely to rebound in India much faster than that in the western markets. In addition, the Indian rupee is probably at its lowest levels and any appreciation in the rupee is likely to make the returns even sweeter.

Given all of this, India still is an attractive market for PE investors. However, given the volatility in equity markets and the overall uncertainty on when demand growth will pick up, investors will take a more cautious approach. Though small and select investments will continue to be made, it will be some time before we will see the same level of activity, which we saw in 2007.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at