Indian VCs losing interest in web/mobile sector?

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Eat this – In Q1 2008, the PE investments in India surpassed that of China!!.

The country witnessed private equity investments to the tune of four billion dollars in the first three months of this year – out of which ~ 30% investment accounted for infrastructure and real estate sector.

In Q1 2008, infrastructure and real estate accounted for 30% of PE investments. Energy, telecom, media/entertainment, financial services, and manufacturing followed. Between them, these six sectors mentioned here accounted for 90% of all PE investments over the last three months.

Basic areas like infrastructure, real estate, energy, telecom get the largest share of investments; following by second order needs like financial services, logistics and manufacturing. Media/entertainment, Internet, retail/consumer are perhaps third order needs, in a country like India.

About $ 5billion of new funds have been announced in April so far, of which around 70% of the dedicated money is for real estate/infrastructure. Some of the other money is sector agnostic, like Azim Premji’s newly announced $1billion fund.

At the same time, lot of PE deals have fallen apart in the recent times (Kshitij Advisory Services, which formed a strategic JV with CapitaL, JV between Pantaloon Retail India and kidswear brand Gini & Jony etc) – more so because of the US recession fear and the general market sentiments.

Well, the investment slowdown is not just the India story, but is a US-wide phenomena too and investments in start-ups fell 5% to $7.1 billion during the first qtr of 2008, compared to the year-ago quarter.

What’s happening in India?

Essentially, when there are slowdown fears, VCs will start investing in “safe” sectors like real estate and infrastructure instead of “where-is-the-business-model”, i.e. web/mobile sector. Case in point: Google-backed Erasmic recently invested in Kaati zone (food outlet).

Look at the positive side of the entire story – the investment is happening in areas that matter the most, i.e. infrastructure, energy and telecom; followed by manufacturing and then web/mobile – which in my opinion is a healthy sign.

What do you think? Do we need a “Google” kind of story in India – a story which makes everybody else take note of Indian web/mobile story?

Share your opinion.

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