Profile: Gaja Capital’s Gopal Jain

Gopal Jain, co-founder of India’s Gaja Capital, has been investing for 40 years and has no grey hair. The secret? Start when you’re 13.

Jain made his first investment in the early 1980s, putting INR 2,000 (then about USD 200) into Gujarat Ambuja Cement, a recently established public company. The decision came after learning that the government was liberalising cement trading rules; heretofore purchasing the construction material in India required official permission.

He declined to pin down the size of his massive return, but 1,000x windfalls were a feature of Ambuja’s early success.

It was a decidedly esoteric thesis for a kid, but Jain jokes he won the “ovarian lottery” with highly educated parents. Family conversations about business were part of growing up, and copies of The Economic Times were always around the house. Jain’s mother was an avid stock market investor and floated him that fateful INR 2,000.

The investment was also prescient as a play on India’s economic modernisation and social uplift. Core to Jain’s motivation as an investor is an idea that India is on track to become the world’s third-largest economy and a middle-income country on a per capita basis. Most importantly, this ascendency will coincide with long-overdue advances in quality of life and reduction in poverty.

“The next 25 years in India promise to be at least as exciting as the last 25 years, and the reason for that is because private equity has started working here,” Jain said. “Private equity has started working in India because India has become a large economy and, in parts, it has become sophisticated. That sophistication is coming from the digital-tech economy.”

Theory to practice

Serious interest in private equity started at university, albeit as a side project. Jain chose to pursue electrical engineering at the India Institute of Technology’s Delhi branch for prestige and challenge. But in his spare time, he studied finance.

In 1991, Jain wrote up a business plan for an asset management business, an alien scheme in India. But this was an era of widespread social and institutional restructuring – Jain compares it to the USSR’s perestroika period – that transitioned India from an industrial hereditary aristocracy on the brink of bankruptcy toward a meritocracy ready for new ideas.

“In a way, it seemed like the universe was conspiring to make my business plan work,” he said. “You could see that these radical reforms would lead to a leap in the expansion of the Indian economy, the creation of a finance economy, the emergence of private players and the institutionalisation of capital markets, and therefore the establishment of asset management.”

Jain took his idea to M.Y. Khan, a professor at the University of Delhi South Campus who was known for espousing unpopular free-market concepts. Khan shared a consignment of books the Ford Foundation donated to the university when it closed its India office in the 1960s. This kind of literature was unavailable in India – part science fiction, part underground financial cult.

“As I started reading these books, I realised there was this massive market in the US. I discovered the asset management industry and mutual funds, and it seemed certain to me that this would be repeated in India,” Jain said.

“I was supremely convinced despite the fact that none of that existed and there wasn’t even a regulator. There was nobody you could apply to get a license to build an asset management business. But I believed it would appear.”

Jain set up an asset management business, made balance sheet investments in public markets, and started reading Warren Buffet. It was rich pickings in terms of quality companies available at low single-digit multiples, so he began buying larger stakes and channelling Buffet to become “less of a trader and more of an investor.”

Private unlisted companies were the next logical step, when Jain picked up a 25% stake in TV18 in 1995. At the time, the business was focused on content creation, not broadcasting. Now, thanks to a partnership with CNBC owner NBCUniversal, it’s considered the only Indian production company to have a major stake in the local operations of a global broadcaster.

Going private

From there on, private markets were the focus. In 1996, Jain helped set up a Boston-based asset manager targeting the Indian macro story called View Group. A debut fund closed two years later. He worked between the two countries, building up private equity knowledge in the US, and importing it to India.

View’s first investment saw the firm bring a shareholders’ agreement to a leading law firm in India only to be told no such thing existed; it went on to be one of the first in the country. But the standout deal was India Life, an insurer initially set up as a payroll and benefits administrator due to regulatory restrictions on the privatisation of the sector at the time. It was sold to New York-listed Hewitt Associates in 2002.

Many of the connections from these days fed into the establishment of Gaja in 2004, including Imran Jafar, a co-founder at Gaja who had a brief internship at View. Likewise, Manish Sabharwal, founder of India Life, is an investor in Gaja’s management company. His latest project, a staffing business called TeamLease, was backed by Gaja in 2009.

Importantly, the change from View to Gaja was philosophical. While the former targeted Indian companies with US-dollar revenues to hedge against India’s macro instability, the latter was based on faith in the local economy. This required a more hands-on approach to portfolio support, not only to help companies survive but to stay competitive amidst the expected influx of private capital.

“It was clear to us that while we were operating in an environment of capital scarcity, this would change very soon. Then, private equity and venture capital firms would require operational skills, not just financial skills,” Jain said, noting that Gaja’s other co-founder, Ranjit Shah, came from an operating background.

“This has been a very strong and differentiating aspect of Gaja Capital to date – that we have a strong operating signature, a distinct operating style, and a high-touch approach.”

Gaja raised USD 25m for its debut fund in 2005, with subsequent vehicles hitting USD 180m and USD 240m in 2008 and 2016. The strategy is to take minority stakes in a mix of small to medium-sized enterprises and start-ups, ushering them to the M&A and IPO stage. Assets under management currently stand at about USD 500m, and Fund IV is on track to close on approximately USD 400m.

Jain takes pride in Gaja’s role as one of the few homegrown private equity firms in India, a market still dominated by foreign-headquartered GPs. “We represent a small cadre of alternative managers emerging from India that have the potential to achieve global scale in the next 15-20 years,” he said.

The backdrop for this confidence is a belief that as India’s economy grows, it will naturally become core to global portfolio managers’ portfolios. The rupee will become a reserve currency. And, like Chinese private equity before it, Indian private equity will become a large and discrete asset class unto itself, in step with an irreversible socio-economic march.

“Private equity as an industry is propagating meritocracy, helping talent combine with capital to create economic value, attracting capital to India, and implementing business practices and good governance,” Jain said.

“We are playing a transformative role in India by creating a new breed of good corporate citizens. It’s not just making it a more prosperous country – it’s making it a happier country.”

Welcome reset

Nevertheless, Gaja has slowed its pace of investment in recent years. As so-called cross-over investors like SoftBank Group and Tiger Global Management have poured into the country, taking aggressive public market-style tactics to PE, the landscape has become complicated.

Jain noted that global investor attention has been positive in the sense that companies in need of growth-stage capital have flourished and a robust venture capital ecosystem has been reinforced. “But the capital had surrendered all character and personality and became worthless,” he said. “From 2017 to 2022 was an unprecedented time where capital was presenting itself as without any cost.”

The current cooling-off period is therefore interpreted as an opening, with Gaja planning to scale up its operations across the next 5-10 years. Valuations are seen as normalising. There is more time to study unit economics and focus on value-add programmes that build businesses first and foremost for consumer markets. Financial markets can be considered later.

This climate is especially encouraging in a post-pandemic context. While India hosted some of the deadliest surges before vaccines became widespread, the country has arguably emerged as the only major Asian market to parlay its lockdown-induced tech boom into a sustained nationwide growth story.

“India’s fiscal response to COVID was far more mature and sophisticated than the major Western economies in the sense that we didn’t break the bank,” Jain said.

“It’s been the kind of crisis that has justified breaking every possible rule, but unlike other countries, India did not. Combined with the massive digital transformation that’s happening, that makes this one of the most attractive growth markets in the world.”

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• Topics
• South Asia
• GPs
• India
• Gaja Capital Partners
• Gopal Jain