I ndia rivals China as the destination of choice for private equity investment in emerg-ing Asia. In 2007, India-dedicated funds raised US$4.6 billion versus China’s US$3.9 billion. During the first half of 2008, India funds had raised US$3 billion. Momentum

in fundraising is only part of the story, however, as a number of PE investors are deploying capital in India through pan-Asia funds.

Over the last 18 months, PE investors have put more money to work in the Indian market than in China. India eclipsed China in total investment in 2007, attracting US$14 billion compared to China’s US$12.8 billion. Data provider Venture Intelligence estimates that private equity investment through June 2008 had reached US$6.3 billion. Zero2IPO, a data provider that tracks Chinese VC and PE investment, estimates that China attracted US$5.2 billion during the same period.

India’s economy has thus far proven comparatively resilient to the global slowdown. The International Monetary Fund revised its 2008 GDP growth forecast only slightly from 8.4% to 7.9%. While India’s growth story remains compelling, the current local economic climate poses distinct challenges and opportunities for PE firms. Inflation in India has hit a 13-year high, registering 12.3% annual inflation in September 2008. This develop-ment raises concerns about potential value erosion. Additionally, the rupee’s erratic movement against the dollar in the last 18 months has increased currency risks for foreign-currency denominated funds. The rupee appreciated 12% against the dollar in

Country Snapshot

© 2008 Emerging Markets Private Equity Association 1

India’s PE Fundraising and Investments Totals (2005 - 1H08)

2008 Population*: • 1.2 billion

Population Growth (2001-2008): • 11%

% of Population Under 15 Years-old: • 31.5%

GDP (2008): • US$1.1 trillion*

GDP Growth (2008): • 8%

AnnualInflation(asofSept.08):• 12.3%

Source: CIA World Factbook, International Monetary Fund, Reserve Bank of India.

* Projected.

continued on page 2

Source: EMPEA (fundraising for India-dedicated private equity funds), Venture Intelligence (private equity investment in Indian companies).

Note: EMPEA includes infrastructure-focused funds and excludes real estate-focused funds in its fundraising totals.

IndiaAn Overview of Trends in Select Sectors and Markets September 2008

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EMPEA Insight: India

2007. Having reached a peak in January 2008, the rupee sub-sequently depreciated by 12.2% against the dollar, falling to a two-year low in September 2008.

The 2008 correction in India’s capital markets has brought mixed results for PE players. The Bombay Stock Exchange index, the BSE Sensex, has fallen more than 25% since the beginning of the year. The Sensex P/E ratio fell from its December 2007 peak monthly average of 26.94 to 20.71 in April 2008. This has been a boon to the pipelines of Indian PE firms as PE has become a more attractive alternative for companies seeking to raise capital. However, it has also made it more difficult to get some deals done because of mismatches between investors’ and owners’ price expectations.

Fundraising TrendsPE firms seeking to capitalize on India’s dramatic growth appear undeterred by these macroeconomic challenges. The number of funds focused solely on the Indian market has exploded, reaching 136 as of September 2008, with an estimated 33 new funds launched in 2008 alone. 1 1 Estimates of the size of the Indian market vary a great deal. Evalueserve, an Indian consulting firm, has estimated that as many as 366 funds are operating in India today. AVCJ puts the number at 190 as of 2007. These variances are assumed to be a reflection of methodological differences around inclusion rules.

This dramatic expansion of the funds landscape is accompa-nied by rising fund sizes. Average fundraising targets among India funds have nearly tripled, from US$205 million in 2005 to US$573 million in 2008. This expansion is being fueled by the launch of dozens of new funds and the continuing stream of new entrants from developed markets.

At the same time, local veterans are contributing to the in-creasing depth of track records. Fund managers with succes-sor funds in the market include Jacob Ballas Capital India and ChrysCapital, each raising a fourth India fund. Actis, ICICI Ven-tures, IDFC Private Equity, IL&FS and Baring India are currently in the market with their third funds.

The Indian funds landscape is also seeing the entry of a num-ber of captive and sponsored funds with household names, in-cluding Tata, Reliance, Aditya Birla and Mittal. Tata Capital, the financial services division of the Tata Group, launched its first PE vehicle in 2008, with a target of US$200-US$300 million, aimed at investments in mid-sized healthcare and technology companies. The Aditya Birla Group’s private equity arm began investing proprietary capital in December 2007, but is now seeking capital from institutional limited partners. The group also plans to raise a real estate fund.

continued on page 3

September 2008

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Number of India-Focused Funds Launched by Year (2004-2008)

Source: EMPEA.

Fund Manager Fund Size

Aditya Birla Capital n/aPremjiInvest US$1bReliance Capital US$1bTata Capital US$200m - US$300m

Captive Funds Launched by India Conglomerates (2008)

EMPEA Insight

Editorial Director Jen Choi choij@empea.net

Writing and Research Alexander Adrian / adriana@empea.net; Sean Michaels / michaelss@empea.net; Harrison Moskowitz /moskow-itzh@empea.net

Production Manager Cristiane Nascimentonascimento@empea.net

Advertising OpportunitiesEMPEA Insight offers readers an overview of the data and drivers behind investment trends in emerging markets private equity. Each issue of EMPEA Insight provides an opportunity for a single exclusive back page advertisement. Issue-specific placements are on a first come, first served basis. For a list of upcoming issues and more information about advertising opportunities and rates, contact Cristiane Nascimento at nascimento@empea.net.

About EMPEAThe Emerging Markets Private Equity Association is a broad-based membership organization founded in 2004 that focus on the emerg-ing private equity markets of Africa, Asia, CEE, Russia/CIS, Latin America, and the Middle East.

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© 2008 Emerging Markets Private Equity Association 3

Reliance Capital, the financial services arm of conglomerate Anil Dhirubhai Ambani Group, seeded Reliance’s first PE fund, which aims to raise a total of US$1 billion for investment in phar-maceuticals, services, real estate and logistics. Software giant Wipro Technologies’ chairman Azim Premji has provided the funding for the US$1 billion evergreen fund known as Premji-invest, which has invested in 40 companies since its launch in 2006.

A reflection of the growing sophistication of the Indian market, funds are becoming increasingly specialized and diversified. Previously limited to infrastructure and technology, several new sector-focused funds are zeroing in on sub-sectors within the Indian market, including agribusiness, life sciences and even the entertainment industry. By one estimate, 37% of funds launched in the first half of 2008 had a sector focus other than infrastructure; launches of infrastructure-focused funds repre-sented 33% of the total in the same period. 2

Sources of Capital

While India’s pension funds are still prohibited from investing in private equity, this has not impeded growing participation in the asset class among other local institutions—primarily banks, corporations and investment managers. A review of 352 LPs who have committed to India funds reveals that at least 15% to date have been local.3 An analysis of commitments made to India-dedicated funds in the first six months of the year sug-gests that local LPs made as many as 36% of allocations in the time period.4

2 Source: Asia Private Equity Review. 3 Source; Private Equity Intelligence: Investor Intelligence database. 4 Source: Asia Private Equity Review.

The net effect of the more sober global investment climate is still unclear, but one likely outcome is a flight to quality, which would make it more difficult for first-time funds to raise capital and create greater competition for access to funds with the lon-gest track records. Data provider Venture Intelligence estimates that only two first-time funds held closes in the first six months of 2008, versus 14 in all of 2007 and 10 in 2006.

Whatever the near-term effects, most LPs have a long-term view that includes India. EMPEA’s 2008 Survey of Institutional In-vestor Interest revealed that 77% of LPs surveyed expect to be investing in India within the next three to five years.

Investment TrendsPrivate equity and venture capital investment reached US$6.3 billion in the first six months of 2008, versus US$14 billion in-vested in all of 2007 and US$5.4 billion in the first half of 2007. Deal sizes nearly doubled between 2005 and 2007, from US$15 million to US$37 million. More recently, however, deal traffic re-flects the broader market correction in India, with deal sizes in the first six months of 2008 falling slightly to US$33 million.

Investment in the telecom sector rose from US$50 million (rep-resenting 1% of the total) in the first half of 2007 to US$1.3 billion during the same period in 2008, driven by a handful of large deals. At least seven transactions completed in the first six months of 2008 totaled US$100 million or more, most of them in telecom-related deals. These included an IDFC Private Equity consortium’s US$185 million deal with Quippo Telecom, Provi-dence Equity Partners’ US$640 million investment in Aditya Bir-la Telecom, KKR’s US$250 million acquisition of a 2.5% stake

continued on page 4

EMPEA Insight: IndiaSeptember 2008

Fund Manager Most Recent Fund (Vintage Year, Fund Size)

Sector

3LOGi Capital, Evolvence Capital Evolvence India Life Science Fund (2007, US$150m)

Life Sciences

A K Purwar and Ajay Piramal Health Care Fund (US$200m) Healthcare

Cinema Capital Venture Fund Cinema Capital Venture Fund (2008, US$178m)

Entertainment

India Rizing India Rizing Fund(2008, US$100m) Defense

Rabobank Private Equity India Agribusiness Fund (2008, US$100m)

Agriculture/Agribusiness

Tuscan Ventures Tuscan Ventures (2007, US$50m) Logistics

YES BANK Limited Food and Agribusiness Fund (US$100m)

Agriculture/Agribusiness

Sector-FocusedIndiaFundsintheMarket(2008)

© 2008 Emerging Markets Private Equity Association 4

in Bharti Infratel and a US$300 million investment in telecom infrastructure firm TowerVision backed by Morgan Stanley and others.

The statistics illustrate the tremendous potential of the Indian telecom market. Growing by eight million new subscribers per

month, the cell phone user base is expected to increase from 250 million to as many as 600 million in the next two to three years.

Private equity investment in India’s healthcare sector has simi-larly surged, more than tripling from US$126 million in the first half of 2007, to US$459 million between January and June 2008. ICICI Ventures is among the PE investors targeting invest-ments in healthcare facilities. ICICI’s US$250 million healthcare holding company I-Ven Medicare kicked off with an investment in Medica Synergie, which will set up eight hospitals in West Bengal within two years. Consultancy firm Technopak estimates as much as US$5 billion will be invested in the sector between 2008 and 2011, with roughly 70% expected to go into regional hospitals in small towns. Others seizing on this trend include AIG, with a US$88 million investment in Narayana Hrudayalaya, and UK-based Ashmore Investment Management, which bought a 19% stake in Quality Care India for US$23 million.

While most PE firms are eschewing high-risk pure drug discovery businesses, PE investors are looking instead to contract with re-

AverageDealSizeofPrivateEquityTransactions(2005 - 1H2008)

Source: EMPEA, Venture Intelligence.

September 2008EMPEA Insight: India

continued on page 5

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SamplingofRecentInvestments

Fund Manager Company Name Amount (US$M)

Company Sector Investment Date

Investment Equity (%)

Aditya Birla Capital Vmart Retail 15 Retail Jul-08 25%

AIF Capital BioPlus Life Sciences 31 Life Sciences Jun-08 n/a

AIG, JPMorgan Narayana Hrudayalaya 88 Health care Feb-08 25%

Ashmore Investment Management Quality Care India 23 Health care Jan-08 19%

Baring Private Equity Sharekhan 57 Financial Services Mar-08 12%

Blackstone Capital Partners Allcargo Global Logistics 60 Logistics Feb-08 10%

Darby Overseas Investments, Ltd. Amalgamated Bean Coffee Trading Company

25 Food & Beverage Apr-08 0.3

Evolvence Capital Gland Pharma Ltd 30 Healthcare Jan-08 n/a

ICICI Ventures Medica Synergie 16.5 Healthcare Jan-08 n/a

IDFC Asset Management Co Ltd Quippo Infrastructure 185 Infrastructure Aug-08 12%

IDFC Asset Management Co Ltd Seaways Shipping 27.9 Transportation Jun-08 22%

Kohlberg Kravis Roberts & Co. (KKR) Bharti Infratel 250 Telecom Feb-08 2%

Morgan Stanley Tower Vision Telecom Feb-08 n/a

Providence Equity Partners Inc. Aditya Birla Telecom (ABTL) 640 Telecom May-08 20%

Sabre Abraaj Capital Engineering and Construction Company (ECI)

25 Construction Apr-08 n/a

The Carlyle Group Repco Home Finance 27.7 Housing Jan-08 n/a

Warburg Pincus LLC Laqshya Media Pvt. Ltd. 65 Media Jun-08 18%

WL Ross & Co. LLC SpiceJet Ltd. 80 Travel Jul-08 n/a

US$15

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© 2008 Emerging Markets Private Equity Association 5

search or pharmaceutical companies with pipelines of products in late-stage trials. Recent deals have included Evolvence Life Sciences Fund’s US$30 million investment in Gland Pharma Ltd. and private equity-backed Arch Pharmalabs’ 70% stake in Benzochem Lifesciences. Forty-five percent of Arch is held by PE firms ICICI Venture, IL&FS and SwissTec.

Consumer services remain a hot target as well. As India’s middle class expands, so does the need for consumer services, such as banking and insurance. In 2007, services represented 55% of GDP. PE investment in banking, financial services and insurance totaled US$4 billion in 2007, and US$370 million in the first half of 2008, representing 21% of total investment from January 2007 to June 2008.

The infrastructure need in India is immense—estimated at US$500 billion over the next five years. India’s installed power generation capacity is estimated at one-third that of China’s. Transport networks, particularly roads, are so poor that between one-third and one-half of India’s produce spoils before reach-ing the consumer. PE firms are capitalizing on this problem by targeting logistics, shipping, engineering and construction companies rather than the assets or projects themselves. PE firms injected US$5.4 billion into infrastructure-related sectors

in 2007, more than double the amount invested in 2006 and 30% of overall value.

Examples of 2008 PE investments in the infrastructure space include Sabre Abraaj Capital’s US$25 million investment in Hyderabad-based construction leader Engineering and Con-struction Company, Blackstone’s US$60 million investment in Allcargo Global Logistics, and IDFC Private Equity’s US$28 mil-lion injection in Seaways Shipping.

With the drop in public markets, PE firms see the potential for improved deal pricing, but many company owners have not yet fully adjusted to lower valuations, creating strained negotiations. Deal-breaking disagreements between fund managers and com-pany owners have been common in 2008.5 At least 14 major pri-vate equity deals fell through in the first quarter of 2008. Among these were ICICI Ventures’ proposed US$800 million investment in infrastructure company Jaypee Infratech, and Indivision Capi-tal’s proposed minority investment in Dish TV.

5 Source: Grant Thornton India Dealtracker.

continued on page 6

September 2008 EMPEA Insight: India

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BSESENSEX30

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vera

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MonthlyPERatioAveragesforBSE/NSEIndices(Sept.07-Apr.08)

Source: EMPEA, Bombay Stock Exchange (BSE), National Stock Exchange (NSE).

© 2008 Emerging Markets Private Equity Association 6

EMPEA Insight: India

Exit TrendsThe Indian exit environment slumped slightly in the first half of 2008, as the number of liquidity events fell 31% versus the same period in 2007, from 45 to 31. PE firms achieved 65 exits in 2007.

Following this year’s market correction, the attractiveness of the much-hyped Indian IPO market has waned. Only six PE-backed IPOs took place in the first half of 2008.

According to a survey of investors conducted in April 2008 by advisory firm Deloitte, 54% of respondents believed returns in India would decrease over the next six months. Median return multiples held steady in the first half of 2008 at 3.13x from 3.18x for all of 2007.

Prospects for secondary sales are growing with mega funds like Blackstone, Carlyle, Baring and 3i earmarking billions for India, and Western PE firms seeking a foothold. ChrysCapital partially exited its 20.6% stake in Shriram EPC through a pre-IPO sec-ondary sale to US PE firm Argonaut Partners. The expansion of companies within India as well as the arrival of multinational corporations is yielding strategic buyers for private equity as-sets. In 2007, Actis sold its stake in Punjab Tractors to Indian conglomerate, Mahindra & Mahindra. SAIF Partners sold its stake in Indian brokerage firm, IL&FS Investsmart Ltd., to HSBC in May 2008.

September 2008

India:RealizedCapitalinReturnMultiples

(2006 - 2007)

Source: Asia Private Equity Review.

Firm Name Company Sector Investment Year

Capital Invested (US$M)

Exit Type Exit Date

3i India Infrastructure Adani Power Energy 2007 US$227M IPO on LSE May-08ChrysCapital Shriram Group Transport 2005 US$22M

(20.6%)Partial Exit through Sec-ondary Sale (US$3.5M)

Feb-08

Granite Hill Capital Ventures Gokul Refoils and Solvent

Industrials 2007 US$1.2M (1.39%)

Partial Exit (US$35) Apr-08

IL&FS Investment Managers, i-Labs, TDA Capital Partners, Indian Value Funds, IFC

DQ Entertainment

Online Education

n/a n/a Share sale on AIM Jan-08

Lehman Brothers KSK Energy Ventures

Energy 2001 n/a IPO Jun-08

New Vernon Capital Updater Services Services 2006 US$10M Secondary Sale (US$26M) Feb-08SAIF Partners IL&FS

Investsmart Ltd.Financial Services

2004 US$8.4M (12%)

Trade Sale May-08

UTI Ventures Excelsoft Technologies

Technology 2001 US$0.6M Secondary Sale (US$31M) Apr-08

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Median return multiple was 3.13x in 1H2008

© 2008 Emerging Markets Private Equity Association 7

EMPEA Insight: IndiaSeptember 2008

Sampling of Firms Investing in IndiaPE Firms Investing in India Most Recent Fund (Vintage Year, Fund Size) Sector Focus

India-dedicated Funds

3i Group India Infrastructure Fund (2007, US$1.2b) Infrastructure

Actis India Real Estate Fund (2007, US$300m) Real Estate

Aureos Capital South Asia Fund (2006, US$123m) Generalist

Baer Capital Partners Beacon India Private Equity Fund (2007, US$220m) Generalist

Baring Private Equity India Baring India Private Equity Fund III (2008, US$550m) Energy

Blue River Capital Blue River Capital I (2006, US$135m) Generalist

ChyrsCapital ChrysCapital Fund V (2007, US$1.25b) Generalist

GVFL Limited GVFL SME Technology Venture Fund (2008, US$59.8m) Technology

Helion Venture Partners Helion Venture Partners II (2008, US$210m) Generalist

ICICI Venture Funds ICICI Venture Capital Fund III (US$1.5b) Generalist

IDFC Asset Management Co Ltd. IDFC Private Equity Fund III (2008, US$700m) Infrastructure

IL&FS Investment Managers Ltd. Tara India Fund III (2007, US$400m) Generalist

Jacob Ballas Capital India New York Life Investment Management India Fund III (2008, US$278m)

Generalist

Kotak Private Equity Group (KPEG) Kotak India Growth Fund II (2008, US$440m) Generalist

Lighthouse Funds India 2020 Opportunity Fund (2008, US$125m) Generalist

Mayfield Fund Mayfield India (US$150m) Generalist

Millennium Spire Asset Management Millennium Spire Fund II (US$200m) Real Estate

Motilal Oswal Venture Capital Advisors Pvt Ltd.

India Business Excellence Fund (2008, US$125m) Generalist

New Silk Route Private Equity New Silk Route Private Equity Asia Fund (2008, US$1.5b) Generalist

Nexus India Capital Nexus India Capital II (2008, US$220m) Generalist

Quantum Equity Advisors Q India Fund (US$500m) Infrastructure

Samara Capital Partners Samara Capital Partners Fund I (2007, US$250m) Generalist

Sequoia Capital Sequoia Capital India III (2007, US$300m) Technology

Tata Realty & Infrastructure Ltd. Tata Realty & Infrastructure Ltd. (US$750m) Infrastructure

TVS Capital, Shriram Group TVS Shriram Growth Fund (US$115m) Consumer

VenturEast VenturEast Proactive Fund (raising, US$150m) Technology

YES BANK YES BANK Infrasturcture Fund (raising, US$700m) Infrastructure

Zephyr Peacock Zephyr Peacock India Fund I (2006, US$100m) Generalist

BTS Investment Advisors Ltd. BTS India Private Equity Fund (Raising, US$50m) Generalist

Asian,Pan-EM,andGlobalFunds

HBG Holdings HBG Holdings Limited (2007, US$200m) Generalist

Citi Venture Capital International (CVCI) Growth Partnership LP Fund II (2007, US$4.5b) Generalist

Global Capital Management (100% subsidiary of Global Investment House)

Global Buyout Fund (2007, US$750m) Generalist

Warburg Pincus Warburg Pincus PE X (2007, US$15b) Generalist

Siguler Guff BRIC Opportunities Fund II (2007, US$1b) Generalist

Navis Capital Partners Ltd. Navis Asia V (2007, US$1b) Generalist