The Week That Was for India's Private Equity Markets
Updated: Sep 11, 2019
If you have gone through our update on the venture capital scene last week, you would know that the mounting crisis of the Indian economy is yet to have halted fund infusions in a multitude of unique startups.
However, even as the #venturecapital market continues to thrive in the midst of a worrisome economic slowdown, the private equity space has a different story to tell.
Of late, the credit flow in the #Indianeconomy has anyway dried up, with some of the biggest lenders of the market refusing to part with cash despite nudges from the apex bank and a move towards significant recapitalisation.
With many of the major banks busy working out the recently announced PSU bank mergers and non-banking financial companies hard-pressed for funds, the coming days are likely to see drearier times for the Indian lending scenario, which can only hurt the prospects of private equity investments further than the economic decline already has.
While the private equity market has not necessarily come to a grinding halt, it definitely has started betraying signs of a cautious lull.
According to PwC data, the first half of 2019 saw a mere $3.1 billion worth of stake sales, a far cry from 2018's figures: which saw stakes worth more than $24 billion being sold off.
At a time when the Indian economy itself is heading towards a potentially harrowing crisis, the PE investors are understandably playing coy and putting their exit plans on hold. Of course, this does not necessarily correspond to the developments in the VC market, where exits have kept up their usual momentum. The PE market has taken a major beating because of the effect the economic downturn has had on the #IPO stage.
As the public market in India has steadily dipped with the falling fortunes of our economy, it has adversely affected the prospects in the PE space as a whole, exacerbating the crisis already perpetuated by the lack of credit flow and a liquidity crunch.
Even with the month of July clocking in an all-time high of #PrivateEquity deals, the space has remained largely conservative in recent times. Of course, that is not to say that the entirety of the market has found itself languishing in the doldrums.
The past week has definitely seen some major deals being inked by PE firms in India, marred only by a few disappointing trends.
For starters, automobile major Mahindra & Mahindra has moved to pay 103 crore rupees to acquire a 55% stake in popular homegrown ride-hailing service Meru Cabs.
Another one of the most notable deals that have been finalised over the last few days has been
The acquisition of a majority stake in Eurokids International Private Limited by global alternative investment firm KKR and Co.
Being one of the largest providers of educational services in India, Eurokids has a vast experience in the burgeoning #education and childcare industries, making it a rather promising investment for its new majority backers.
Aditya Birla Capital Limited, another mainstay in the country's business arena, has also managed to onboard new investors as it has attracted a total capital of $153 million from Advent International and PremjiInvest, with the investors acquiring 4.15% and 4.11% stakes respectively.
PremjiInvest is a private equity fund owned by Azim Premji which manages a $1 billion portfolio and Its operations are shrouded in secrecy to consciously avoid building a public profile. (Source)
Meanwhile, a particularly promising statement has come from Prem Watsa, business magnate and chairman of Fairfax Financial Holdings Limited, as he claimed in an interview that his company is looking to invest in Indian companies to the tune of $5 billion over the next five years.
Considering how the economic downtrend and the prospect of a global recession have affected the Indian investment arena, it goes without saying that such massive fund infusions would help revive it to a great extent.
However, this week has also seen Prabhat Dairy finalise its decision to delist its shares and go private, possibly in response to the 20% plunge its shares had recently taken.
Besides the obvious slowdown that has seized the private equity sector in the country, we have also seen the contours of the industry changing in recent days, with funding patterns transforming as per the needs of the market.
For example, SoftBank, which was by far the most influential investor for most late-stage start-ups for the longest time, has found itself increasingly being replaced by pension funds and sovereign wealth funds, both of which often allow companies greater flexibility while funding them against private equity stakes.
While the private equity market stutters in the face of economic decline, the foreign direct investments have also proved to be less than satisfactory of late, despite the Finance Minister announcing a slew of #FDI reforms to give a boost to our sagging economy.
A study by Prof K S Chalapati Rao and his colleagues show us that over half of the FDI flowing into sectors as crucial as manufacturing are going into acquisitions rather than capacity building which would actually benefit the economy in the long run.
With their being no government policy to guide the quality, rather than the quantity of foreign direct investments in India, the potential of FDIs also seems to be questionable as far as an economic revival of our country is concerned.
We can only hope that the public market of India will strengthen with a greater influx of credit in the coming days, considering that the Finance Minister has also decided to flush the banks with funds worth about 70000 crores of rupees.
However, for now, the mood in the #PrivateEquity scene remains sombre, with investors desperately hoping for a quick revival of the fledgling state of our affairs