Is India still One of the Most Important Markets for Global Private Equity?

India is still one of the most important emerging markets for private equity investors, but the enthusiasm for high returns has been replaced by careful exit considerations. For private equity investors, the beginning of 2013 looked much the same as the end of the preceding three years—flat and with little momentum.  But as explained by the Finance Gurus, early signs point to a PE upswing. Credit markets are robust, M&A activity is on a rebound and long-term PE returns outpace those of all other asset classes. Many funds invested in 2005 and upwards are now looking for exit solutions.

Julie Kenny, Portfolio Director for EFS Consultants in India, is providing some of her insights of the Emerging Market of India. In her speech at the Going Global Conference in London she states, “The Private Equity industry in India is without a doubt in transition. After a period of deceleration that began in the second half of 2011 and continued into 2012, there are signs of a slight upward trend in the industry. As yet it is not clear if the equilibrium has been reached, but we expect that the market will determine its own balance in 2013 — both in the terms of number of PE fund managers and the extent of PE money available for the Indian market. Clearly the political decision to scrap GAAR would indicate to the investment community that their Investments are wanted and indeed will not be lumbered with a costly expatriation after exit.  “

Mayank Rastogi, a partner in the Private Equity and Transaction Advisory Services division of Ernst & Young India says in his interview, “not only infrastructure projects will remain interesting, also the sectors related to consumer products, healthcare and financial services will continue to be focus areas in 2013 for PEs and VCs. He goes on to echo Mrs. Kenny’s concerns and states, “now exit routes are becoming a prime consideration and we will have to spend considerable time planning for an adverse exit environment”. With the current absenteeism of initial public offerings, private equity firms are having a tough time exiting their expensive and old portfolio firms, leaving several firms with no option but to exit through secondary deals. Secondary deals are whereby companies are traded between private equity groups rather than outwardly in the open market. If Private Equity exits are difficult and the taxation concerns through future GAAR implications are not lifted less investors will come forward for this market.