BS BFSI Summit 2023: No funding winter in PE investments, say experts

India is a highly favoured destination for investment in APAC, Renuka Ramnath, founder and CEO at Multiples Alternate Asset said at Business Standard's BFSI Insight Summit 2023

There is no funding winter in private equity (PE) investments in India, industry experts said at the Business Standard's BFSI Insight Summit 2023 in Mumbai on Tuesday.

In a panel discussion with Business Standard's Executive Editor Nivedita Mookerji on "Shrinking India Pie - Will the trend reverse?", Renuka Ramnath, founder and chief executive officer (CEO) at Multiples Alternate Asset, said that there is a "secularly upward" trend in the PE inflows. Ramnath said," In the current year, software-as-a-service (SaaS) and consumer tech received $4 billion. These sectors received $30 billion last year. Sometimes, there is a rush of capital in certain sectors and then, these sectors see correction. In the rest of the sectors, investment has gone up. India is a highly favoured destination for investment in Asia–Pacific (APAC)."

Agreeing to this, Amit Chandra, partner (private equity) at Bain Capital said, "15 years ago, PE accounted for one-fourth of all foreign direct investments (FDI) in India. Now, PE accounts for over two-thirds of FDI in India." He added PE is the "most important source of long-term capital" for India.

Moreover, according to Vishal Tulsyan, CEO and managing director (MD) at Motilal Oswal Alternates, in the last 2-3 years, PE investments have jumped 2x in India. He added that India needs huge capital inflows in the coming years for sustained high growth. "In the last two-three years, there has been 2X investment in PE. Investment was upwards of $ 50 billion this year. Overall, net FPI has been $25 billion and net private investment is upwards of $150 billion."

"This country can grow at 10 per cent for the next 20-25 years. But it cannot happen without massive capital infusion into Indian companies and entrepreneurs," he said.

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Talking about the source of the slowdown, Ankur Bansal, co-founder and director at BlackSoil, said that it is primarily in the venture capitalist (VC) industry. "Suddenly, capital has become scarce for startups, leading to a rise in demand for alternative capital like debt. The venture debt industry is crossing $2 billion now. The industry is not really slowing down," he said. "Slowdown is in the VC industry".

Bansal said that the slowdown is partly right also. Stating that the concept of profitability was "completely elusive", he added that consolidation was required. "Now everyone is working on business models. Reasonable valuations have come into place. Capital is always available for good companies," he said.

On the trends in the industry, Ramnath said that India is likely to see more consolidation in the coming years. "India needs mega corporations for global competition and that is going to happen by consolidation," she said. The most exciting thing happening is the change in ownership from family to institutions. Going forward, financial sponsors are going to control shareholders in large part of Corporate India, Ramnath added.

The writing is on the wall. What India requires are mega-corporations to sustain profitability. Many families will consolidate in the future. Consolidation is going to be crucial in the pharma sector. The trend is going to grow in the future, she elaborated.

Chandra stated that Bain's investments in India are around 25 per cent of its total investments in Asia. "I see this only going up," he said.

On geopolitical events, Tulsyan said that there may be some short-term impact, but it will not have much bearing in the medium or long term.

Chandra added, "We live in a very interlinked world. Given the scale of our economy, we have to plan for these economic and political events. To truly build an 'atmanirbhar' capital market, we need to build a domestic asset management industry."

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Moreover, Bansal said that it will be key to note how many Indian unicorns continue to exist in the coming years. However, he added, "Startups are again going for the initial public offer (IPO) markets. It is an interesting trend," he added.

On challenges on the regulatory front, Ramnath said that the PE sector is grateful for Alternative Investment Funds (AIF) norms. PE is still an evolving industry, unlike banks. Regulators have been focused on protecting investors.