Dynamism endures

Iqbal Khan and Natashaa Shroff at Shardul Amarchand Mangaldas analyse India’s PE landscape in 2017

In a global investment environment characterized by increasing policy uncertainty, the India investment story is a rare example of a shining bright spot. Estimates suggest that the total private equity (PE) deal value for India in 2016 was approximately US$ 17 billion; the second highest level since 2008. The economy boasted a growth rate of 7% for the quarter ended December 2016, significantly higher than the analyst estimates of 6.4%. The growth forecast for 2017 remains solid, and beats that of its BRICs peers, in spite of the demonetization in 2016, which was expected to paralyse India’s cash rich economy. Add this together, and it’s easy to see why India’s investment story retains its sheen.

Macro-economic factors are at the heart of this investment story. India’s pro-investment regime coupled with a stable currency (as compared to its emerging market peers) and falling interest rates will continue to make it an attractive destination for PE investors in 2017. In addition, India focused funds armed with approximately US$9 billion in dry powder are proactively pursuing fundraising. This along with a limited number of quality assets, stiff competition and active public markets have led to high valuations, and this is forecasted to continue in 2017 as well.

Given this context, sellers will continue to prefer the auction route over bilateral negotiations. Control and buyout deals will dominate the landscape, as PE funds prefer this and Indian promoters are likely to be more forthcoming about relinquishing control than has been the case in the past. Minority investments with options for control will grow further.