Entrepreneurs in tier II, tier III towns reaching out to PEs

Private Equity (PE) players have told Deloitte India that their appetite would continue to be directed towards companies that benefit from the strength of domestic consumption. Potential beneficiary segments include e-commerce, small retail, agriculture, healthcare, financial services, education and media & entertainment.

Limited Partners (LPs) are also revisiting their India investment outlook, more so, buoyed by a rising stock market and increased acceptability by Indian promoters.

Analysing the PE activity over the last few years and topped up with the views of select private equity players Deloitte India released a paper titled ‘The build-up to another PE wave’ in association with ASSOCHAM and Private Equity & Venture Capital Association of India (PEVCAI). Participants shared in discussion with Deloitte on their perspective on the current investment climate and expectations for the near future.

Besides consumer-driven plays, government’s policy initiatives emphasising on areas such as development of smart cities, high speed rail connectivity, food processing & agro industry (including cold chain) and clean energy are expected to generate ‘excitement’ across industry sectors and geographies.

“Growing domestic consumption, results of the recently concluded general elections that gave stability at the Center and declining global commodity prices has created a trifecta to position India once again as one of the top investment destinations in the world. As business sentiment improves, the stock market too has seen a gain of over 25% (1 January to 30 September, 2014). This would be beneficial in creating conditions for exits in the coming years," said Kalpana Jain, Senior Director, Deloitte India.

The sentiment of this trifecta is reflected in resurgence in deal activity. Deal value in 2013 saw approximately $8.5 billion worth of private equity deals across 410 deals while 2014 has recorded approximately $8 billion invested in 460 deals till September 2014. Average deal value remained in a similar range between $20 million to $25 million in 2013 and 2014, due to a few large deals.

Given that money is needed for core infrastructure development, the investing community is of the opinion that although it may take time, investment in backbone sectors such as infrastructure, education, healthcare and renewables will continue to see more traction as government policies take effect on ground. So far there have been 10 deals representing a PE investment inflow of approximately $3.4 billion primarily as minority stake in investee companies. In addition to traditional PE investors, non-traditional equity investors such as SoftBank and Canada Pension Plan Investment Board have shown interest in Indian assets.