Private Equity Investment in India has increased dramatically in last 10 years. In coming years more fund is supposed to flow in India in the form of Private Equity Investment. Retail sector in India is set to get huge funding from Private Equity players. The facts and figures has said that the retail sector has increased almost 6 times last year. We all have seen how fast the retail chain of stores are opening in metropolitan and other major cities of India. This is the reason why Private Equity players are so bullish about this sector. Not only this, India is the second fastest growing economy of the world after China. India has population of over 115 million as compared to China’s 133 million. With increased earning power of these nations, the consumption pattern of these hugely populated nations is creating almost endless opportunity for retail sector players. Private Equity Investors are quick to realize this potential and had funded hugely the retail sector. The same trend is going to continue in coming months.

A recent study has highlighted that in year 2008 (before the financial crisis of USA) the private equity investment figures in retail sector in India was $288 million. After the stock market collapse the Private Equity investment fell to mere $63 million, but in year 2010 saw the revival of the economy and Private Equity Investment in retail sector grew to $372. This was almost a six times growth shown in Private Equity investment only in one year.

In year 2007 the retail sector attracted the highest Private Equity investment as compared to all other industrial sectors. Private Equity investment in retail sector in year 2007 was as high as $136 million. But soon the stock market fell and the euphoria of private equity investment was lost. In those moments of euphoria even bad investments were made by local players like Subhiksha Trading and Vishal Group. Following bad estimates of retail sector growth potential they took huge debts from the market. Due to fierce competition the profitability of retail sector was bare minimum. These companies found it hard to pay back their debts even at break even prices. Recently the news flashed about Vishal that almost all of their major retail stores god sold at distressed selling at only Rs 70 crore. At that time Vishal was carrying loans worth Rs 750 crore to be paid back. But even after these negative stories few other retail stores did excellent in the same years like Pantallons, Shoppers Stop, Big Bazaar, etc. Other major real estate players like DLF, Ambuja etc has created fantastic retail outlets like City Center, Inorbit, Mani Square, South City etc.

There is a forecast about retail sector that with the help of Private Equity Funding the retail sector in India will grow to $475 billion mark in coming twelve months. The expected growth rate of retail sector will be minimum 8%-9% per annum.

Indian Private Equity players like SAIF and AVIGO are very bullilsh about retail sector growth. According to them at present potential, retail sector will probably grow faster than the over all Sensex growth. This is the reason why India saw almost five million square feet of retail space created in year alone in year 2010. The best thing about this retail space creation is that all this construction are organized and planned creations. They are not like some pawn shops getting opened in any where and everywhere. Sources say that Private Equity is more focused in retail outlets for food marts, fashion including clothes and foot wears, household furnishings etc. Food and Clothing retail outlets generates approximately 70% of the total sales in organized retail stores. Experts say that Private Equity spending in food and beverages retail outlets creation will be robust for at least next five years. The growth potential to create an organized mart for common public is immense.

There are few investment negatives that if implemented will create an investment heaven for the investors fo retail sector. At present only 51% FDI is allowed in case of investment in single branding retail stores. 100% FDI is allowed only in case of multi branding store and cash and carry type of outlets. If the limit of 51% is relaxed then we may see even higher investment levels in retail sector.

At present the biggest retail house player in India is Pantaloon’s in terms of market capitalization. The debt Equity ratio of Pantaloon is 0.84 which is a very good. At present when the retail market is plagued with severe competition, maintain debt equity ration of 0.84 is excellent. Seeing the fate of Subhiksha and Vishal Mega Mart’s all retail players has become very cautious regarding their debt levels. Recently all major retail houses have taken corrective actions to increase their profitability. Instead of considering ‘only’ foot-falls as their business objective careful store management and profitability has taken priority. Some retail players have even decided to close those stores which were not running profitably

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