The Indian PE Industry has gone through a unique journey of resurgence from its nadir in 2009 (total investment USD 3.9Bn) to a record high of USD 24Bn in 2017; truly like a phoenix, rising from the ashes.
Factors Propelling PE Investment Growth
Several factors led to this upward journey over the last decade, starting with gradual changes like the improved growth rate of the US and European economies, currency appreciation of INR vs. the US Dollar, Government stimulus to address nonperforming assets (NPAs) and successful implementation of GST. In addition, relaxing FDI norms and permitting scheduled banks to invest up to 10 per cent of the paid-up capital in Category – II AIFs and relaxing transfer pricing norms to avoid multiple taxation for offshore funds set up as multi-tier investment structures have had a positive impact.
Large PE Deals
India-focused fundraising totalled USD 6.4 Bn in 2017. Big-ticket asset owners such as pension and sovereign funds started showing interest, especially after Moody’s upgraded sovereign rating outlook for India. Canadian houses such as CPPIB, CDPQ and Brookfield alone invested over USD 4 Bn last year. Fund sizes have increased for most PE firms and they are looking at larger deals. Large ticket investments are leading to billion dollar plus MBO’s (General Atlantic investing in Capital Foods), setting the stage for more such transactions in the future.
2018 seems to be poised for topping the previous year figures as more than 20 India-based funds such as Gaja Capital, TVS Capital, Multiples, Light Speed, CX Partners to name a few, have in principle secured and closed cumulative fund raising of approximately USD 3Bn. Additionally, numerous GP’s are on the road to raise approximately USD 15 Bn. GP’s such as ChrysCapital, Kedaara, Multiples and TrueNorth amongst others, are looking to raise funds of USD 750Mn – 1Bn each
The People Movement
Amidst this resurgence, 2017 also saw the largest number of senior professionals exiting to ostensibly start their own funds. Their confidence is obviously driven by the overall buoyancy in the global and domestic markets. This combined with the fact that there is substantial dry powder with existing GP’s, will ensure a robust hiring season for entry level professionals into the industry, after a long hiatus. Hunt Partners expects several opportunities emerging at the Director and Partner/MD level as well.
Key trends underscoring the Indian PE arena in 2017
• Increase in deal sizes and fund sizes,
• Availability of capital,
• Technology being a driver of investment themes,
• Positive IPO market, creating exit opportunities for older investments.
2018 is looking more positive and optimistic than ever before, with an upgraded Moody’s rating, an impending election, markets on a high, improved ease of business index, and significant dry powder among PE funds. On this note, we hope PE activity in 2018 will surpass 2017 levels and play a key role in shaping the Indian economy, as always.