Insights from the India Web Seminar 2010

According to Subbu Subramanian, Managing Partner of MCap Fund Advisors, speaking in the webinar, among the industry’s key conundrums is the capital overhang, which may be arbitrated if the industry collectively adjusts its return expected. “Capital does flow to where there are potentially higher returns, and that’s created this overhang on the supply side,” he said. “There were some apprehensions until about 12 months ago that the quality and size of exits does not merit further flow, but with the buoyancy and IPO-triggered exits, we suddenly find that this market can also return capital through the IPO and liquidity which is acceptable to the international investors.”

As far as expectation management is concerned, “There is a trending-down of return expectations, and that is fair given what is happening to the dollar-based risk-free returns,” Anil Ahuja, Head of 3i Asia, added. “So you would have expected to see that, if the risk premium is to be maintained at the same level, a very similar drop in overall return expectations from the Indian private equity world.”

Regulation and economic policies must also be taken into consideration. According to Indranil Pan, Chief Economist at Kotak Mahindra Bank, much of India’s economic strength has to do with its high currency inflation, and recognizing how it shifts in scale allow investors to approach the market from a more macroeconomic perspective. “There is no doubt that India is one of the strong growers in the global economy, and possibly just behind China; the obvious implication for this is that the inflation is quite high. The last number we had on the WPI [Wholesale Price Index] was about 8.5%,” Pan said.

Other factors and sectors driving India’s growth? High domestic consumption, strong demand for domestic investment, and growth in the services, banking, air traffic, freight and agricultural sectors.

Punit Shah, Executive Director & Head of Financial Services & Private Equity Tax Practice at KPMG, also added that uncertain taxation, litigation and earning regulations have worn on the PE and VC industries, pointing to retail, real estate, and print and broadcast media among the most fickle. Although regulators have become “considerably liberalized” over the past decade, Shah labeled the tax reforms in India “a bit slow” and “uncertain; creating an unstable atmosphere for investors and especially for private equity players looking to invest in India.

Further reading

Legalese in India

• Regulation
• 23 Nov 2010

India private equity: taking up the challenge

• South Asia
• 24 Nov 2010

India emergent

• South Asia
• 24 Nov 2010

Indian private equity’s characteristics

• South Asia
• 24 Nov 2010

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• South Asia
• Performance
• Regulation
• 3i Asia Pacific
• Anil Ahuja