Private equity (PE)
investments in the country have potential to touch USD 40 billion over
the next 10 years, says a report. The report, based on the inputs from
over 40 partners and principals in PE houses, expects the PE industry to
contribute to the growth of the country's economy on a larger scale
than earlier. "Over the next 10 years, deals, both in size and nature,
will increasingly turn closer to those in some developed countries with a
potential to reach USD 40 billion in 2025 in the country," a PwC report
on 'PE in India 2025 - A USD 40-billion decade beckons?' said. The
total PE investments in the country stood at around USD 9 billion in
FY14 and is likely to touch USD 10-12 billion in the current fiscal.
The report said the next investment cycle will represent a more mature
phase of investing in the country. It believes that the industry will
consolidate with perhaps 70 to 80 significant players. While venture
and growth opportunities will continue apace, the industry believes that
buyouts will be the biggest investment theme over the next decade as
India Inc deleverages and exists non core businesses. "Consumer-centric
businesses have been big themes for equity investors over the last few
years. While this will continue, Indian consumerism is expected to
embrace the rural markets as well over next five years, as growth
reaches the interiors of the country," PwC India's leader (private
equity), Sanjeev Krishan, said. The report stated that funds have
increased their emphasis on diligence today as never before. The
diligence has become intensive with much focus on getting to know the
sector well, which means speaking to other operators in the industry,
point of view discussions and learning from previous experience of
investors in the sector, the report said. Krishan said PE investors are
eager to support domestic companies, with proven local presence, to
expand in overseas market.
According to the report, clarity and stability in the fiscal and tax regime are the most critical factors for attracting foreign capital in the country. "Poor corporate governance is another factor which worries the industry when evaluating targets," PwC said. However, investors are now seeing the emergence of better governance going forward. Investors believe that there is an increasing realisation among the promoter community that better corporate governance will ensure certainty of deal closures and in shorter time periods, the report said. General Partners (GP) sees fund raising as one of the challenging in recent times. "This is expected to change as LPs regain confidence in the local market," the report said. Most of the respondents felt that while increased direct LP investing is likely in the near term, it is unlikely to be a norm. On the exits, most respondents believe that as the investment climate in the country turns business friendly, strategic investors, both overseas and domestic, are most likely to provide them exits. A number of early stage investments will continue to find financial buyers, and provide 'secondary' exits, it said. While a number of respondents believe that IPOs will stage a comeback and provide an opportunity to exit some of their existing investments, most of them consider an IPO exit challenging as timing becomes very critical in an IPO exit.
According to the report, clarity and stability in the fiscal and tax regime are the most critical factors for attracting foreign capital in the country. "Poor corporate governance is another factor which worries the industry when evaluating targets," PwC said. However, investors are now seeing the emergence of better governance going forward. Investors believe that there is an increasing realisation among the promoter community that better corporate governance will ensure certainty of deal closures and in shorter time periods, the report said. General Partners (GP) sees fund raising as one of the challenging in recent times. "This is expected to change as LPs regain confidence in the local market," the report said. Most of the respondents felt that while increased direct LP investing is likely in the near term, it is unlikely to be a norm. On the exits, most respondents believe that as the investment climate in the country turns business friendly, strategic investors, both overseas and domestic, are most likely to provide them exits. A number of early stage investments will continue to find financial buyers, and provide 'secondary' exits, it said. While a number of respondents believe that IPOs will stage a comeback and provide an opportunity to exit some of their existing investments, most of them consider an IPO exit challenging as timing becomes very critical in an IPO exit.
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