Q&A: Tata Opportunities Fund's Mukund Rajan

Q: How does the Tata Opportunities Fund fit into Tata Capital's overall strategy, given that you also have other specialist funds?

A: Private equity is a key focus area for Tata Capital, which has individual funds with distinct mandates. Given the growth trajectory of the Tata Group in recent years, PE is emerging as an important source of risk capital. The Tata Opportunities Fund will provide its investors an alternative route to participate in the group's growth by investing into or alongside Tata companies. We have secured commitments to the tune of $600 million from LPs and made have made investments to date of roughly 20% of the fund, which is in line with the pace we expected.

Q: How important is the Tata brand when deal sourcing?

A: The Tata brand is one of the most trusted brands in India, as well as a being recognized globally. The group's reputation for good corporate governance is synonymous with trust and reliability, and that is reflected in the confidence investors have that their interests are well protected and secure with Tata. This has been a significant differentiator for Tata-backed funds when prospecting for private equity opportunities.

Q: Foreign investors appear to be bearish on India at present. What do you see as the major problems?

A: The Indian macro story suffered a setback as a result of the slowdown in the economy, as well as doubts and negative perceptions built up about the government's commitment to economic reform. However, this is expected to change in the wake of recent reformist tendencies. Going forward, we should see greater alignment between the political agenda and policy measures to address India's economic growth potential. The other major issue affecting foreign LPs' perception is the performance of Indian funds. Their key concerns in this regard include lower returns on investments, corporate governance deficits, insufficient exits, and instability of teams.

Q: To what extent do you consider potential exit channels when investing?

A: Our first investment is only 20 months old, so we have not yet exited any deals. However, identifying exits is extremely important, and we do consider this at the time of investment. Multiple exit routes are built into our analyses, including IPOs, trade sales, and sales to financial investors and promoters. GPs need to identify clear exit routes at the time of investment and plan for multiple scenarios that also factor in market volatility. There has been an explosion in private equity investments in India in the past five years, but not every fund has been sophisticated in its approach to exits. As the industry consolidates, I think there will be greater discipline.

Q: Some Indian GPs are trying to diversify their product offerings. Why is this?

A: It is important to be flexible on investment strategies in India, given the uncertainties and occasional volatility witnessed in the economy and the public markets, and also the stiff competition amongst funds for quality transactions. Illustratively, some funds have decided to assign a significant portion of their portfolios to PIPE deals. That said, we would advocate identifying a strategy that a GP feels it has the skill sets to execute upon, and working towards effective implementation rather than frequent changes in strategy.

Q: Tata is in the process of launching a fund with Power Finance Corp. How attractive is India's power sector?

A: India's per capita power consumption is about 700 kilowatt hours, almost one-fourth that of China. Given a much higher global average and the increasing footprint of India's manufacturing industry, the country will definitely require more investment in this sector - a need that was clearly underlined by the nationwide blackouts witnessed earlier this year. The major concerns that have impacted the sector are the viability of the provincial electricity boards which are significant buyers of power, and the availability and pricing of fuel for utilities. Once these issues are addressed, we can expect to see an enormous amount of investment in the sector.

Q: To what extent are valuations still a concern for private equity investors in India?

A: Valuations have moderated in recent quarters in the wake of depressed public markets, a high interest rate environment and more reasonable promoter expectations. Valuations have to be specific to an asset and should not be generalized within a sector. That said, we are looking closely at sectors benefiting from consumer discretionary and sectors where India has a comparative advantage over other countries either in manufacturing or in services.

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• Topics
• South Asia
• Expansion
• Buyouts
• Fundraising
• Tata Capital
• buyout
• Growth capital
• India
• Exit