Determinants of private equity investment across sectors in India

Abstract

PurposeThe purpose of this paper is to explore country-specific and firm-specific factors responsible for attracting private equity investment across sectors in India.Design/methodology/approachThe analysis involves three macroeconomic variables (rule of law, net FIIs and interest rate) across six sectors. Also, three firm-specific variables (ROE, DTA and EBITDA margin) for 89 companies with private equity across five sectors. OLS, Prais–Winsten, multinomial logit and probit regression models have been used for analysis.FindingsThe findings show that while rising foreign investments drive PE activity in energy and engineering and construction is one sector, strong legal structures and rising interest rates are the drivers of PE activity in the healthcare sector. In firm-specific analysis, though the profitability and leverage effect is invisible in the industrials and healthcare sectors, it is quite significant in IT and telecom is one sector and commodities sector.Research limitations/implicationsResults are subject to limited data on private equity in different sectors. There is a lack of data for comparison on companies belonging to certain sectors like real estate, infrastructure, etc. A limited literature is available for reference purpose. Research findings may serve as preliminary criteria for private equity investors seeking investment in India.Originality/valueThe value of this research is in the identification of most relevant macroeconomic and firm-specific factors for private equity investors seeking investment across sectors in India.