Sectors that will do well in 2010

Singapore's Temasek, which is one of the largest sovereign wealth funds, manages $6.4 billion assets under in its South Asia portfolio.

A majority of these investments are India-centric. The fund has invested in top Indian companies such as ICICI Bank and Tata Sky. The Singapore-based entity's Senior Managing Director and Head for India, Manish Kejriwal, gives his outlook for 2010.

Will fund-raising get easier after two years?

It has been extremely challenging to raise funds in the current climate. I expect the fund-raising environment to ease a bit but still remain extremely difficult over the coming year, when funds will be smaller and fund-raising periods longer.

In this environment, the contrast between high-quality GPs (general partners) will become ever more pronounced and while quality GPs may be able to access the market, others may be frozen out. Also, there is plenty of dry powder with many GPs, which should help them through the fund-raising drought.

Which sectors will hog the limelight?

We continue to remain bullish on the telecom and financial services space. The retail sector will also do well in the coming year, though rising inflation is a cause for concern. Within the infrastructure space, power (provided valuations turn the corner) and roadways are interesting avenues. In the domestic consumption space, healthcare and education will be the high-growth segments.

Will we a see a lot more exits next year than in 2009?

The pace of exits will improve as compared to the negligible exits we saw in FY09. As valuations have improved with recovery in the stock markets, private equity (PE) exits have gained pace. However, despite some movement on exits, PE funds will most probably look to extend average exit timelines. I expect most PE funds to follow a disciplined approach and strive for exits at regular intervals.

Do you expect to face some challenges next year?

High valuations will be one of the major concerns for PE funds. The deal volume is likely to remain sluggish and I don't see it approaching the highs of 2007 any time soon. As PE funds look forward to a more hospitable deal climate, they need to build adequate liquidity and focus on due diligence of potential acquisitions, with greater emphasis on quality of earnings and cash flow. They would also need to restructure their portfolios in order and align themselves to pick out growth opportunities as and when they arise.

What is your outlook on valuations, deal size, managing portfolio firms and meeting expectations of limited partners (LPs)?

We will see more deployment of capital and bigger deal sizes. We also encourage our portfolio companies to look at opportunities for raising capital to strengthen their balance sheet even as they continue to look at new growth opportunities in the coming year. Over the year, most LPs have encouraged their GPs to reshape their portfolios, identify suitable investment opportunities and build dry powder amid the prevailing market turbulence.