A more mature investment phase likely, says PwC India's Sanjeev Krishan

PwC has just released its private equity thought leadership report. 'PE in India 2025', which has the views of 40 General Partners (GPs), talks about the future, potential and challenges for private equity. Sanjeev Krishan, Leader - Private Equity, PwC India, tells BUSINESS TODAY that implementation of stable policy programmes and better governance standards are important to investors. If these do not happen at the desired pace, it may give rise to challenges.

Q. What are the main highlights of the report?

A. A number of themes emerged from the survey. The four that stood out are: the appreciation in the Indian currency until 2007, and depreciation thereafter, significantly influenced returns made by PE investors during the period. While the latter is well understood, the former has possibly not got due attention. Also, a number of GPs admitted that they made mistakes.

In hindsight, the exuberance of doing deals in India at a time when global liquidity was at a high meant they may have overpaid for some assets, and agreed on terms that limited both their ability to influence investee decision-making and exit mechanisms. However, the good news is they have learnt from it, and a more mature investment phase is likely to follow.

A concern was that investor confidence was significantly impacted by the unstable policy environment that prevailed over the last few years. Lack of exits during the period, caused by a variety of reasons, made PE investors and their LPs negative on India, and as a result, understanding potential exit mechanisms is key to fresh deals that they do. Aligning PE - investee promoter objectives is key to success. This is currently work in progress.  

Q. What impact will the new government have on the investment climate?

A. In the course of our interactions with PE funds, a number of them gave us more than one potential outcome, on the basis of the election results. The two consistent messages all of them gave us were:

(a) The need to revive the investment cycle, and
(b) Consistency in policy [economic / tax / regulatory] which should be aimed at future and not the past.

Assuming a stable government would make efforts to address both of the above, this augurs well for the investment climate in India, and one would hope that both financial and strategic investors would look at India much more positively than before.

Q. What sectors will attract maximum investor traction in coming few years?

A. PE investors believe that consumer, IT, business services and health care would continue to be key sectors for them, followed by infrastructure. In value terms, however, we expect infrastructure to do much better.

Q. How do you envisage the exit scenario unfolding?

A. Exits are absolutely key for PE funds at the moment. It is expected that renewed confidence in India and the economy would encourage more strategic investors to come to India, which would provide exits to the PE funds. IPO markets are also expected to revive, while secondary exits would continue.

Q. What would be the fund-raising situation? Will small first-time funds find LP interest?

A. LPs are looking at track record, and in that context, first-time GPs, or those with inadequate experience, may struggle to get funding in the near term. At the moment, LPs are cautious about India, but this is expected to change over the next year or so, as they see the new government in action and hopefully experience many more exits. At that point in time, one would hope that fund-raising would ease further, and they'd provide the necessary dry powder for continued India investments.