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PE remains bullish on India amid coronavirus fears and slowdown

(From left) Advent International’s MD Shweta Jalan; General Atlantic’s MD and head for India and South-East Asia Sandeep Naik; IFC-South Asia’s regional lead for disruptive technologies and PE funds group Neha Grover; and Trilegal’s partner Nishant Parikh. (Photo: S.Kumar/Mint)Premium
(From left) Advent International’s MD Shweta Jalan; General Atlantic’s MD and head for India and South-East Asia Sandeep Naik; IFC-South Asia’s regional lead for disruptive technologies and PE funds group Neha Grover; and Trilegal’s partner Nishant Parikh. (Photo: S.Kumar/Mint)

Panellists at the two-day Mint India Investment Summit & Awards discuss the way forward for deal-making and investment opportunities in the country

MUMBAI : Investors remain bullish on the long-term growth trajectory of the country, appearing to remain bright despite India grappling with a slowing economy and the outbreak of Covid-19, which has spooked equity markets the world over.

“We will have these hiccups, like the ones we are having right now, or political issues such as those we had between 2012 and 2014 when there were scams and various instances that brought down growth for maybe a year or two. However, if you look at the long-term average, we believe the India growth story is intact," said Neha Grover, regional lead, disruptive technologies and PE funds group, IFC-South Asia, at the Mint India Investment Summit and Awards 2020 in Mumbai held on 4-5 March. Covid-19 cases in India have crossed 150, while globally more than 200,000 people have tested positive for the infection. On 17 March, rating agency Moody’s cut India’s GDP growth forecast for 2020 to 5.3% on account of Covid-19 impact. Last month it had reduced India’s growth projection from 6.6% to 5.4% for 2020.

The spread of Covid-19 over the past few weeks has had a significant impact on the economy, with trade and supply chains being hampered and domestic consumption demand in affected countries and around the world being depressed, Moody’s said.

However, the disruption caused by the virus outbreak, coupled with India’s slowing economic growth, could give rise to unanticipated opportunities for investors who are willing to take the long-term view on the India opportunity. “Some of the best companies that you might want to invest in are now within a value range where they are attractive," said Sandeep Naik, managing director and head, India and South-East Asia, General Atlantic.

“As for our portfolio companies, we just have to ensure that we stand by them through this time. We’ll help them through the crisis. We see a long-term demand slowdown of maximum two quarters because of this, which is not a large impact. The outbreak, from a PE point of view, will create interesting opportunities," he said.

Investors who are looking at India from a 10-year or longer investment horizon will find enough opportunities, said PE investors. “We invest in businesses for the long term. Geopolitical events keep happening, but we look at businesses from a 10-year horizon," said Anuj Ranjan, managing partner, Brookfield Asset Management, and CEO for Middle East and South Asia.

“The growth that we are going to see combined with the fact that we have a short-term dislocation of capital today, make it (India) very appealing. This is our most attractive market in the world today and we will continue to put in more capital," Ranjan said.

Cheaper valuations and positive long-term growth projections are being seen as positives for making long-term investments, but PE funds continue to be worried about issues such as corporate governance and poor exits in India.

“Founders need to understand that for limited partners to continue allocating meaningful sums of capital to India in the long-run, it is critical for private equity managers to demonstrate exits," said Vishal Mahadevia, managing director and head, India, Warburg Pincus. “One way the industry has moved to solve this issue is to focus on control transactions. However, this is not a complete solution and more needs to be done in terms of alignment with founders and corporate governance standards to continue building India’s reputation as an attractive destination for private equity capital," he said. The introduction of the IBC as a law in 2016 has also created opportunities for investors. It has also led to better credit discipline among promoters and companies, according to Parth Gandhi, senior partner and managing director, AION India Investment Advisors. “IBC has introduced the belief that creditor rights will be enforced and are allowed to be enforced. This has caused some change of mindset in the promoter base out there. Clearly, we are seeing a surge in one-time settlements happening outside the IBC, which to an extent are driven by the fact that families are worried," Gandhi said. As debt-laden Indian promoters look to deleverage and clean up their balance sheets, PE investors are increasingly seeing more opportunities for buyout transactions. The thrust for buyouts is also driven by PE fund managers wanting to have a better control on the future performance of their investments. Buyouts have been on an uptrend over the past four-five years, growing more than five times in value since 2016, which had recorded $3 billion worth of such deals. Last year, buyout deals accounted for 34% of all PE/VC (venture capital) investments by value in 2019—the highest it has ever been, according to data from EY. In the past two years, buyouts clocked $26.7 billion in deal value, which is more than the value of buyouts in the preceding 12 years combined. “A large part of buyout investing is really about managing companies. When you do an investment, it is only about 25% of job done, the balance is building the company over the next four-five years and then selling it right," said Shweta Jalan, managing director, Advent International. “We like to believe that private equity money is actually money that adds significant value to the company. When we buy or invest in a company, it is differentiated capital, not commodity capital, and that is what we try to bring to the table by managing companies," she said.

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