Mumbai: Private equity (PE) investors remain bullish on India and its long-term potential in the belief that slowing economic growth, the rupee’s slump and widening deficits are cyclical headwinds that will be soon overcome. Akhil Gupta, India head of the $46 billion PE firm, Blackstone Group LP, says India is a unique market, offering investment opportunities like no other country. Blackstone has invested $3 billion in India across 28 transactions since entering the country in 2005. Gupta spoke about the Indian market and its potential in an interview. Edited excerpts:

Is India still an attractive market for you?

The macro and micro issues that prevail right now do not change why PE entered India. India still has the best fundamentals that any economy could offer...we have the best demand-side and supply-side demographics...a fast-rising middle class and rapid urbanization... We still have 35% savings rates and we also have a very strong balance sheet, as well as good forex reserves. What we are seeing in India is clearly a reversible thing. India’s long-term fundamentals are very much intact. I still take great comfort in the fact that China, Japan and Korea have all grown at about 7-8% for 50 years and China is known for growing at that rate for 40 years now. That is what India is going to do. So in the long term, I think our fundamentals remain very much intact. The key as to when the reverse will take place depends on the next general election. With a stable government, we will go at the growth trajectory faster.

Has the rupee’s depreciation frightened investors or changed the way they look at investments in India?

Rupee is overdone, in my view. I think we will see more stability in the way rupee will behave. I am also seeing a resurgence of capital investments, order books of some companies have gone up very well this quarter. It will be too early to call the bottom but we are close to the bottom in India right now. Macros attract PE to India. There is no better time to invest in India than now. PEs have to be a little more careful because timing is important, we don’t have luxury of waiting for 10 years for returns. We are long-term investors, but our long terms are like five-seven years. If one or two years are uncertain, then we need to be cautious.

Is debt the new equity in India?

No, in this phase when it looks like the future is uncertain, debt is an instrument that can give guaranteed returns. So it’s a good thing. There are several companies that are very strong, are making money, but they have an imbalance in cash flows. Banks are sometimes not able to cater to their requirements and many companies are not getting the type of funding that they were getting in the past. That is the gap the NBFCs (non-banking financial companies) and a few investors are filling up right now.

Will we continue to see structured deals happening where PE investors put in some element of assured returns, some elements of equity risk?

Different players will have different risk and reward spectrums that they play in. Like in our company, we have PE and debt solutions, we have the largest debt solutions entity in the world, that entity does not do equity. That’s the way PE players differentiate as to what they want to focus on. Some want to focus on structured solutions; some say structured solutions will dip their returns, so they do private equity. It also depends on the situation. Certain situations are such that they are good enough for you to get returns but not good enough for you to see on the upside, so then you do structured returns.

You continue to be extremely bullish about real estate and power. What’s your reading of these sectors?

As far as power is concerned, the projects that we have invested (in) fortunately don’t have any issues like land not being available, supply of electricity not available or financing not available. If you have all these things, then you are doing quite well. Even if your cost has gone up higher than you anticipated, so have tariffs gone up higher than you anticipated. We recently looked at our numbers and we found that our profitability is more or less the same for power projects. We used to be the most aggressive players in power but, as of today, we are not investing in power.

How about claims that PE in India is not a profitable asset class?

If you look at some of the public companies, they are not doing well. The whole of our portfolio is doing very well. If the rupee had not depreciated, we would have done as well as the global portfolio. PE firms don’t look at one investment...we judge ourselves by the portfolio. If you did a deal before the global economic crisis, which no one expected, and now expect the company to not get affected by the macro issues, then I think you are living in a fool’s paradise. So, does every company get affected? No. The question is did the PE investor choose the right firms and as a portfolio is it doing well? Compared with the rest of the asset class, I can tell you PE has done very well both in India and abroad.

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