Indian Private Equity: Is It Different This Time?

June 18, 2019

Over the past several years, institutional investors have shown renewed interest in the Indian private equity market. Supported by a pro-business government, positive momentum in the public markets, and an increasingly robust exit environment, fundraising and exit activity have been resurgent. India-focused funds grew by 30% in 2018 to an aggregate of over US$7 billion raised (versus US$5.5 billion in 2017), while exits also increased consistently to reach nearly US$33 billion in 2018, according to Bain. The world’s second-most populous country and the fastest growing economy has become harder for investors to ignore.

Despite our general optimism, we have some lingering concerns. A decade ago, investor sentiment and capital flows swung from optimistic to allergic. This history begs the question: Is this market on the brink of another downturn? If not, is the current narrative different enough to give global investors the confidence to lean in?

The Previous Cycle

Although several factors have contributed to India’s PE growth, the broad economic liberalization that began in 1991 is generally regarded as the catalyst for India’s global expansion. Four years and an IMF bailout later, foreign investments had grown by over 40 times.

PE firms began to appear during this reformation. The first crop of general partners (GPs) had a hard time procuring and deploying capital given the narrow pool of limited partners (LPs) and entrepreneurs. Because PE was relatively unknown in India, founders and executives were also reluctant to cede some of their control in exchange for external capital, according to EMPEA. Nonetheless, these pioneers persevered and enjoyed relative success amidst limited competition.