Private equity (PE) investors are seeing opportunities to deploy more capital, boosted by the political stability provided by the Bharatiya Janta Party (BJP)-led National Democratic Alliance’s (NDA’s) massive victory in the recently concluded general elections, though economic growth in the country seems to be losing steam, a liquidity crunch is shaking the financial services sector, and consumer demand is faltering.

“There are several macro headwinds, including the key risk around the stress in the financial sector, which is reducing the availability of credit because of the heightened risk perception. This dislocation throws up interesting opportunities to acquire quality businesses at reasonable valuations," said Dhanpal Jhaveri, managing partner at private equity firm Everstone Capital.

Investors believe that the liquidity crunch that has rattled the financial services sector in recent quarters has thrown up new entry opportunities for PE investors who had earlier missed the opportunity to bet on this space. “The crisis also presents an interesting entry point for those who had missed the bus earlier. Interestingly, that entry point comes at a time when the liquidity crisis has managed to separate the men from the boys in the NBFCs (non-banking financial companies) space," said S. Sriniwasan, who heads Kotak Investment Advisors Ltd.

“That is where a few PE firms could drive consolidation among NBFCs, which will happen either through acquisition of companies or through acquisition of loan portfolios," he said.

In the first six months of this year, the financial services sector saw the highest volume of deals in last three years at 89 deals worth $4 billion, compared to 81 deals worth $5 billion in the corresponding period of 2018 and 53 deals worth $3 billion during the same period in 2017, data from EY India shows.

It is not just the financial services space where PE investors are eyeing opportunities arising out of debt related troubles. The liquidity crunch has meant that promoters of mid-market businesses across sectors are also seeing their balance sheets stretched and this is creating opportunities for investors as promoters look to deleverage through asset sales.

“PE investments have also increased as mid-market businesses that were earlier not available for sale are now looking for investors because of balance sheet stress, and these businesses are preferred by PE firms due to their relatively cheaper valuations," said Sumit Jalan, managing director and co-head of India investment banking and capital markets at Credit Suisse, India.

“In the present market, PE investments are being directed towards companies with good business models and poor balance sheets, which allow them to buy assets cheaper," he said.

PE firms are also keenly evaluating investment opportunities in other sectors such as healthcare and consumer sector.

“We believe the narrative will continue to revolve around financials, healthcare, technology, consumer, and real estate sectors. The focus will be on acquiring high quality assets with strong growth prospects, with a clear preference for buyout transactions," said Utpal Oza, who heads investment banking at financial services company Nomura India.

Companies that are looking at large fundraisings or are in a distress scenario, will turn to private markets to meet their capital needs, given the lukewarm activity in primary markets and the long initial public offering (IPO) pipeline, Oza added.

However, while political stability has boosted confidence, investors believe that there are still concerns that need to be addressed for a stable capital flow from PE investors.

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