Bain reports strong growth in the Indian private equity sector

16 April 2018 5 min. read
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On the back of robust growth recorded in funds raised for the global private equity sector, India was amongst the leading markets across the Asia Pacific region in this regard. According to a new report from Bain & Company, funds raised in India grew by nearly 50% to reach a value of nearly $6 billion.

The ‘India Private Equity Report’ from Bain & Company paints a complex picture. The global economy appears to be doing considerably well, having achieved a growth rate of just over 3% last year. Nevertheless, sector-specific performances have created sharp contrasts, such as that between the performance of the commodity-based sectors, which have taken a hit, and the manufacturing sectors, which have flourished.

India is one country where GDP figures have been recording steady upward trends in recent years, sparking projections that it will become the second largest economy in the world over the next three decades. Last year, the country’s GDP grew at a strong 7.1%, driven by, among other factors, a substantial 11% boost for the manufacturing sector, in light of the momentum being gained by the ‘Make in India’ campaign. 

In 2017, the Indian economy witnessed promising trends all around, including a 2% dip in interest rates, a 1% dip in the fiscal deficit, and a slight narrowing in the budget deficit. The much-awaited implementation of the GST saw the taxation and licensing environment relax to a great degree, while demonetisation took a large portion of the economy online, facilitated by Reliance Jio.

Private equity fund raising growth in India

As the banking sector in India grapples with large repositories of non performing assets, leaders in the private financial sector called for reforms, to which the government response was a $32.4 billion investment in the recapitalisation of Indian banks, to unfold over the next two years.

So India’s economic scenario improved last year, which was confirmed by a 30-spot jump in the World Bank’s ‘ease of doing business’ index. As a result, investor-sentiment was sunny, and funds raised in the country’s private equity sector grew by a staggering 48% to reach a value of $5.7 billion.

These improvements placed India amongst the top drivers of growth for Asia, which grew at 6.3% to reach a value of $66 billion. The booming economy appears to be in balance, as the demand for investment is matched by a large dry powder reserve, valued at $9 billion; a level that it has approximately maintained since 2015.

Dry powder growth in India

In keeping with its drive towards simplifying the business environment in India, the government has also relaxed regulations around investment and introduced tax breaks, which has allowed more flexibility for the investment plans of High Net Worth individuals and other institutional investors in India. 

As a result, the number of registered Alternative Investment Funds (AIFs) has also grown, reaching 346 in 2017. The AIF segment accounted for most of the funds raised last year, valued at $5.1 billion of the total $5.7 billion. The regulatory boost received by AIFs has manifested itself in the fact that this figure is more than twice the amount raised in 2016.

Growth in AIFs and AIF funds in India

In addition to funds raised, the mergers and acquistions (M&A) arena was also a big driver of private equity growth last year, driven, in particular, by the telecom sector. Deals concluded in the Indian market in 2017 generated a value of $26.4 billion, which is the highest level reached in a decade. However, this year was unique in that the number of deals itself registered a drop on the one hand, while some mammoth deals drove the overall value to record levels on the other.

Commenting on the findings, co-author of the report and Partner at Bain & Company Arpan Sheth said, “2017 was a strong year for the private equity market in India. Improving economic indicators, formalisation of the economy, and a proactive government addressing the NPA issue are all contributing to India sustaining as an attractive destination for PE investments. This year witnessed a strong growth (48 percent) in India-focused fund raising, and it was the highest ever for both PE exits (~$16 billion) and PE investments (~$26 billion).”