India PE: Reasons to be cheerful

The speakers were good; some of India's largest and most successful private equity firms were represented, including ChrysCapital, Multiples Alternative Asset Management, Everstone Capital and Gaja Capital. But they were not the only pull factor. I know from experience that had the same panel been assembled in 2012, the turnout would not have been as strong.

It came as no surprise that the first topic addressed was the new Narendra Modi-led administration. For the first time in 30 years, India has seen the people give power to a single party and the government is expected to use this powerful mandate to introduce transformative economic policies. Positive sentiment, perhaps most visible in the public markets, is all around.

While acknowledging the impact of the Modi effect on India's public perception, the panelists - showing their experience - dismissed the notion that structural reforms, which may or may not be introduced by this government, are enough to revitalize the domestic private equity industry.

Despite what the headlines might suggest, India's economy has yet to fully recover from its previous torpor. There are still concerns about the current account deficit, it is difficult to predict where exchange rates might swing, and domestic consumption still trails the average level of recent years. Much rests on the Modi administration in terms of putting the building blocks in place for long-term sustainable growth. This is an opportunity, not a panacea.

As we have learned from past experiences in other markets, getting a new government is not, on its own, a good enough reason to invest. India has a number of other factors working in its favor that could make this a particularly opportune time to deploy capital.

First, there has been consolidation within the GP community. The Indian private equity industry is much smaller than it was a couple of years ago - many of the non-performing firms have disappeared and a number of foreign players have beaten a path to the exit. What remains is a core group of well-established firms, some of which have strong track records and are led by investment professionals with experience of different economic cycles.

Second, the industry is now supported by infrastructure and professional services providers that have matured in step with their client GPs. The quality of advice available across investment banking, due diligence, consulting and legal services is higher than ever before.

Third, and reiterating an earlier point, the public markets are doing very well - up 32% this year. This is great news not only for private equity firms looking to invest in listed companies, but also for GPs keen on exiting assets and returning capital to LPs. It remains to be seen how long the IPO window remains open and how many companies can jump through it. The M&A markets remain sluggish, but that may change soon. Even if activity doesn't reach the anticipated levels, secondary exits to other private equity firms remain an attractive option.

Overall, there is a strong case to be made for the current vintage of private equity funds and GPs appear to be picking up their investment pace. As for the LPs, the "once bitten, twice shy" contingent will likely remain cautious for the near term. However, given the popularity of the India panel at the AVCJ Forum, investors are at least open-minded on India - certainly an improvement on two years ago.

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• Topics
• South Asia
• GPs
• India
• GPs