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India's Growing Allure For Private Equity

Private equity is once again looking to make a deal in India. Today, it's for a 33% stake in Hutchison Essar. (“Hatch” as it’s called was one of the first cell phone companies in Mumbai.) This deal is just the latest in the money scramble to get in, on one of the world's fastest growing economies. On today’s “Power Lunch” we asked just how hot are the private equity opportunities in India?

Despite China’s meteoric growth, it seems India is attracting greater interest from private equity firms and venture capitalists. There are many reasons, but 3 major ones come up time and again. 1) It’s an English speaking country, 2) India is a democracy and 3) Growth is out of sight.

BusinessWeek Editor, Roben Farzad explained the nation's preference for private equity (over corporate investment) is cultural. “(India) does retain some good old fashioned nationalism – let’s do it from scratch,” he said. “On top of that India is known for family control.”

As you might imagine, investors who put their money in India sometimes encounter "landmines."

“We have a fund focused primarily on the Indian real estate sector.” said Subash Kolluru, Managing Partner at Orbis Real Estate Advisors. “For capital from overseas going into India, you can not buy existing buildings like you can in the U.S. The government set some limits to make sure (foreign investment) doesn’t create the speculative bubble...you have to buy the land, develop it and then sell it.”

There's also resistance to America's corporate giants. Earlier, there had been rumors that India’s government put the kibosh on Starbucks' plans to open in New Delhi or Mumbai. (The Seattle coffee company didn't comment except to say their plans remain on track.)

“To the extent of a Starbucks being thwarted, that’s a huge opportunity for private equity or venture capital to come in," explained Farzad. "Look at (another) big coffee retailer like Coffee Day, (a rapidly growing domestic chain in India). In other words - Starbucks' loss could be this company's gain.

“It’s really so opportune right now,” concluded Farzad. "Get in on the ground level."