Private Equity in India - Chicago Booth Emerging Markets Summit

I will be offering a few blog entries from the Chicago Booth Emerging Markets Summit, which took place on April 27.  Let's start with India, and something of a personal and subjective synopsis of the views presented by Jahangir Aziz (Chief Economist, JP Morgan India), Jai Das (Managing Director, SAP Ventures) and Archana Hingorani (CEO and Executive Director, IL&FS Investment Managers)

New investment dollars into Indian PE funds were down by 73% from 2010 ($7.7 billion) to 2012 ($2.1 billion). Over the same period, this compares with a decrease of 25% for China (from $14.5 billion to $10.8 billion) and a decrease of 6% overall for Latin America (from $4.5 billion to $4.2 billion).

For India, there is still significant dry powder for new investments and capital is still being deployed, though it is the raising of fresh funds that is down. Why? Growth in India has declined from the range of 8 - 9% to about 5%.  The Rupee has decreased in value, making dollar investments worth less than they were a few years ago. Inflation is up to about 10%.

PE's reliance on debt to help finance deals has limitations in India (though India just announced some liberalization on debt that can be raised). Exits are hard - there are few IPOs and strategic investors are selective. Private equity continues to be a challenge since most businesses are run by families that do not like to relinquish control and don't want to submit to the outside influence as the cost of taking equity. Private equity in India dates only to 1991/1992 and many are still not used to the concept of capital in exchange for ceding part control.

What about the next few years?  Some promising trends: (1) a new Indian economic team is taking growth seriously and is rapidly gaining respect, and (2) the Rupee shows signs of strengthening and could be up significantly in the next 5 years. With growth potentially on the rise and the Rupee strengthening, this puts a tail wind behind all sectors. Even without this, here is an economy still in the early stages of potential, a bit overlooked compared to China and which even now is offering a respectable 5% growth. Moreover, even the present consumer class is in the range of 250 million people, and growing.