Private equity (PE) players are bullish about deal flows following the strong election mandate and expect the focus to be on growth-oriented sectors and improved sentiments in the equity market to provide an exit option.
“India is predominantly growth capital market for private equity players. The case for India now becomes even more compelling with political stability. The valuations need to be looked in the context of growth quantum of earnings in future and certainty of achieving that. In a stable economic environment and moderate interest regime, the risk appetite does look up,” Bharat Banka, managing director and chief executive officer, of Aditya Birla Private Equity, said.
Gaurav Malik, managing director of Olympus Capital Holdings Asia agreed and said conditions have improved since March, as negative news flow has stopped.
Malik said that PE firms would now look at newer avenues such as aviation, insurance and retail after the sector is opened up, in addition to emphasis on infrastructure. Meanwhile, given the improved equity market conditions, PE players would look to sell their existing holdings in listed companies on the one hand and push for initial public offering (IPO) for unlisted companies on the other, thereby creating an exit route.
“Any serious progress on privatisation and disinvestments will restore the interest and confidence of investors in the IPO market. It would also allow private equities to list companies in their portfolio, benefiting the investors because they would get access to quality companies that were unlisted. Besides, private equities will get to exit their listed investments. In both the cases, the liquidity generated by exits will come back to India in multiples as the investors in PE funds will be able to see liquidity and churn their portfolio,” Banka added.
Malik said private investors’ exit from listed companies would depend on the term of the particular fund. “Investors who entered during 2004-2006 would look to exit from listed companies. However, those who entered in the past two years would be still in the red,” he added.
Arun Natrajan, chief executive officer of Venture Intelligence, a Chennai-based firm that tracks private investments, said the exit route might come from big-ticket investors buying out from the small ones, especially in the infrastructure space.
Even though PE firms’ focus would be on growth companies, they would not give up on defensive sectors such as healthcare and education.
Banka added that in India the growth potential for sectors such as education and healthcare are immense due to the developing state of the economy and they offer both defence and strong growth.
Source: My Digital FC