Indian PE: Time to return?

While capital under management is increasing year-on-year, the market has become crowded, high valuations remain an issue, exits are thin on the ground, returns are disappointing, certain regulatory areas are uncertain, and fundraising is difficult. Investors have understandably become disillusioned in the last year or so.

Yet, on closer examination, it isn't all gloom and doom. There are flashes of brilliance that create hope and remind us that strong private equity players can thrive regardless of peaks and troughs in the wider market. ChrysCapital Partners is a good example. Many said the GP would have trouble raising capital now that founder Ashish Dhawan has retired. But under collective leadership, and with a deep bench, ChrysCapital was turning away investors as it secured $510 million for its sixth fund.

There are other exceptions to the rule. The other prolific fundraisers in 2012 have been venture capital firms, led by Helion Venture Partners and Nexus Venture Partners. They may not have ChrysCapital's history, but the teams are strong, the fund sizes are sensible and the investment theses are clear.

And LPs aren't avoiding India - we have more than 50 LPs confirmed for the event and expect more to come. However, as with other markets, institutional investors will be focused and cautious with their allocations. The reality is that many of the India managers who raised capital between 2006 and 2008 will struggle to do so again, unless they have a few exits to show for their trouble.

In this context, now might actually be a good time to invest in India. With the silly money gone, valuations should fall and those firms that remain will have access to a string of good deals.

And speaking of good deals, any private equity firm boasting a strong portfolio represents an attractive proposition for regional and global PE players, not to mention strategic buyers who are circling India with a view to boosting their footprint in key emerging markets.
On a macro level, it could be argued - or, at least, it is to be hoped - that the worst is now behind India. The economy may be weakening but most multilateral agencies and investment banks expect GDP to grow by at least 5% per year for the foreseeable future.

The government also appears to have a tighter hand on the tiller following months of regulatory uncertainty. It is less bellicose on tax issues and Vodafone and ready to introduce reforms, as suggested by the decision to open up multi-brand retail to foreign investors. Though poorly executed in its initial stages, and still opposed by certain political and industry groups, it is a step in the right direction.

Against this backdrop, it is up to the private equity industry to use its substantial capital and expertise to make the most of these nascent opportunities and return the Indian market to its former glory. As Asia's leading private equity publication, we remain steadfastly committed to the market and will continue to perform our role as a hub for information exchange.

 

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