Private equity is gaining greater acceptance in India where rising borrowing costs and a tanking stock market have shut down other means of funding, forcing family-owned businesses to tap a source they had once shunned. Recent ambitious expansion plans by Indian companies, bolstered by plentiful cash, low interest rates and a 9% growth rate were stalled by a global credit crunch and soaring commodity prices. 13-year high inflation rates have driven interest rates to seven-year peaks. Economic growth is expected to moderate this year, while the stock market has fallen nearly 30% in 2008, beating down company valuations.

Indian private equity deals typically involve little leverage, and private equity (PE) firms have often done growth capital deals and late-stage investments, buying small stakes in private and listed firms. Still, private equity firms have had a tough time convincing family-owned businesses to surrender some control in return for cash, especially as a six-year bull run meant these companies could get generous valuations from the stock market. With easy IPOs a thing of the past, firms are coming around. "When the markets recover, firms will choose to tap the market again, but they may now also go to PE, as they are recognizing the value-add that PE brings," said Arun Natarajan, chief executive of research firm Venture Intelligence. Emerging markets' share of private equity deals this year may go beyond the 10% it got in 2007, or about $57 billion, according to London-based Emerging Markets Venture Capital Association.