Private equity 'dry capital' could push deal nos in India

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Deal-making in India could surge in 2011 as more private equity money is likely to flow into emerging markets like India, China and Brazil. According to consulting firm Bain & Capital, the amount of dry capital in the private equity space globally is a staggering$1 trillion. Dry capital is the amount of money raised by private equity funds for investing but is still not invested. To add to that, companies around the world are sitting on cash worth $2 trillion, half of it held by US companies.

Common sense suggests that businesses would look to invest that money into places where economic growth is robust along with strong corporate performance.

In India, companies are sitting on $70 billion worth of cash.

Over the past one year, according to one report, PE firms invested $9.5 billion, more than double the amount of 2009. The trend is expected to continue as Indian companies are expected to continue to clock a robust earnings growth in comparison to markets around the world.

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The trouble with so much surplus cash in the system is that it could push people to strike bad deals. This could be perhaps good news for those seeking cash to grow the business in the short-term. However, in the long-term, this could be a disaster to have an investor sulking in board meetings all the time.

India's entrepreneurs are conservative in their approach to private equity. This perhaps explains more number of minority stake sale deals and late stage transactions.

According to a study conducted by Dheeraj Pandey and Thillai Rajan A of IIT Madras, the private equity investors held investments for a short duration and made fast exits in comparison to US. Also, investments were in late stage financing or for growth capital.