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INDIAN PRIVATE EQUITY MARKET – EXCELLENT PERFORMANCE IN THE FIRST HALF OF 2019

PE/VC Investments in India rose by 27% during the first half of 2019

Private Equity in India enjoyed an excellent performance in the first half of 2019. During this period, the private equity and venture capital (PE/VC) investments in India crossed $23.4 billion, 27 per cent rise from the same period of the previous year, according to a study by Ernst and Young (EY). Growth momentum continued during the period, with infrastructure sector, one of the core sectors of development, attracted $7.3 billion of PE/VC investments.

The Govt aims to put the Indian economy on a growth path leading to $5 Trillion from the current $2.61 Trillion by 2024-25. So, $2 trillion-plus worth of value is incrementally going to be created in the next decade. The whole demographic dividend, consumption story and financial services opportunities, are all very big. Indian Mid Market Private companies are expected to be on a high growth trajectory. Small and mid-sized businesses flourish in several parts of the country addressing consumer needs and demands. The segment, comprising private companies with revenues ranging between $10 million and $2 billion, has been a major force behind much of the economic growth and employment generation in the country over the past decade. Due to their high growth trajectories, these companies are likely to be tomorrow’s market leaders.

So private equity, as an alternative form of growth capital, will remain robust in coming years and lead the corporate growth story. It’s an effective source of growth capital for lower to middle market segment companies to achieve their growth aspirations. India is an exciting market with strong macro drivers, including strong demographics (approximately 60 per cent of the population is between 15 and 55 years old), growing consumption (private consumption is 58.4 per cent of GDP) and policies that are promoting a favourable business environment, such as the GST and the Insolvency and Bankruptcy Code, among others, all of which are likely to be sustained over the long term. If India delivers on 7-8 per cent growth in the next 10-15 years, there are several companies across sectors that are estimated to grow at around 20 per cent-plus. All these factors made private equity as an effective alternative capital source to Indian companies to significantly enhance their valuation.

Some of the key takeaways from the EY report on PE India 2019 H1 performances are:

  • 54 large deals of value greater than $100 million.
  • The number of deals has increased at 43 per cent and 35 per cent compared with the first half of 2018 and 2H18 respectively.
  • Strong buyout activity and investments in infrastructure and real estate asset classes.
  • The period attracted $7.3 billion of PE/VC investments in infrastructure sector, more than 1.6 times recorded in the entire 2018 and more than the previous two years’ investments put together.
  • $5.5 billion in fund raise, 85% higher compared to 2018’s first half.
  • Investments in the infrastructure and real estate sectors during the period are 23% higher compared to investments made in entire 2018. These two asset classes have together accounted for 48% of all PE/VC investments in the period compared to 30% in the first half of 2018 and 19% in the second half of 2018.
  • Exits declined 26% in terms of value, from $5.5 billion to $4.1 billion this year, and 24% in terms of volume, from 101 deals in 2018 to 77 this year.
  • Infrastructure investment trusts (InvITs) are finding favor with global investors, pension funds and sovereign wealth funds. 
  • India’s maiden real estate investment trusts (REIT) paving the way for more such REIT offerings.
  • Buyouts as a PE investment strategy have become even stronger during the first half of the year recording the highest value and number of buyouts for any half-year period ever.

The evolving private equity investment landscape offers significant minority investment opportunities. This will continue to form a significant percentage of the deals in the country. Private equity as a percentage of GDP in India is lower than other comparable markets. With GDP growth, the outlook for private equity in India is attractive as we can see many compelling investment opportunities.

Dileep K Nair

(Investment Banker, Capital Advisory and Corporate Finance expert)

Managing Director

Unifinn Global Pvt Ltd

Dileep@unifinn.com

https://unifinn.com

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