Warburg continues to bet big on India

American private equity firm Warburg Pincus Llc., which manages assets of over $62 billion across the world, on Thursday said it sees India as an attractive investment destination with the best risk-reward ratio compared to other countries.

“At Warburg, the percentage of the fund that is going into India investments right now is 15-20% of our global fund. I am convinced that the next few years will provide the best risk-reward vintage for investing in India,” said Vishal Mahadevia, managing director and head, India, Warburg Pincus, speaking at the Mint India Investment Summit and Awards 2020 in Mumbai.

Last month, the PE fund had said that it was investing $150 million in Apollo Tyres Ltd. Its other recent investments include a 10% stake in SBI General Insurance Co. Ltd and a joint investment with Runwal Group to build malls.

Warburg’s positive outlook for investment opportunities in India comes at a time when the country is bracing for the impact of the Covid-19 outbreak, amid softening credit growth and an overall slowing economy. India’s economic growth in the December quarter slowed to an over six-year low of 4.7%, as manufacturing output continued to contract.

The woes of a slowing domestic economy are multiplied by the rapid spread of Covid-19, prompting the Organisation for Economic Cooperation and Development (OECD) slash India’s growth forecast for 2020-21 by 110 basis points (bps) to 5.1%. It also warned that the impact of the outbreak on business confidence, financial markets and the travel sector, including disruption to supply chains, could shave 50 bps off global growth in 2020. One basis point equals 0.01%.

But Mahadevia is not worried. “The next few years will create one of the most interesting investment environments for private equity in India”, he said in his keynote address. “While the economic recovery may take some time to crystallize, I think, in today’s environment, it is even more imperative for private equity firms to be active as we remain one of the sources of long-term capital at scale, available to founders and entrepreneurs.”

Warburg’s conviction is backed by its efforts to raise a separate pool of capital for investing in India. The PE firm generally invests across geographies through a single global fund. Last November, Reuters had reported that Warburg was looking to raise up to $1.5 billion for its first fund targeting deals in India.

“It is not an India-specific fund, but what we tend to do is that if a sector has been good for us, or a country has been good for us—we have done it in China, we have done it in financial services globally and areas like that— when they become a large part of our global fund, which is the diversified fund, we do raise a separate pool of capital that invests side by side. That’s our strategy, but it’s still the same investment committee. This is more like a side pocket,” said Mahadevia.

However, Mahadevia added that while the country remains an attractive destination, the industry needs to see more exits from investments in India, which will help build confidence among foreign investors to put more capital to play. “We need more exits, we need better stories that we can celebrate.”

“We will ultimately need to demonstrate a track record of value creation and liquidity for our investors. This is a joint responsibility that falls not only on the private equity funds, but also on the entrepreneurial community in India,” said Mahadevia.

Warburg Pincus, with an active portfolio comprising over 190 companies across sectors and geographies, established its first institutional fund in 1971. The PE firm has raised 19 funds, investing $81 billion-plus in over 890 companies across more than 40 countries.