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Will India’s consumption-led growth spur secondaries?

Private equity investors have identified the continuance of consumption-led growth as the leading factor likely to drive future private equity investment in India.

India’s private equity secondaries market only has a few players that have been able to gain traction, although sellers have shown significant interest in the market, according to Amit Gupta, partner and chief operating officer at NewQuest Capital Partners, which spun out from Bank of America Merrill Lynch in 2011.

“We have seen investors looking to create liquidity for their funds more so in the last six to 12 months.”

Gupta expects India’s secondaries market to pick up later this year and more significantly in 2015 and 2016 and according to a survey from consulting firm PwC, the continuance of consumption-led growth is the leading factor likely to drive private equity investment in the region.

About 50 percent of the survey’s respondents ranked consumer growth as the number one factor because private equity fund managers believe rural consumption will grow manifold during the next four to five years. India’s economy has also benefited from middle-class growth, which has helped small businesses.

Realistic valuations (as compared to other emerging markets) and India’s globally competitive businesses, which have benefited from nearly two decades of liberalisation, were identified as the second two most likely factors to fuel private equity investment by 44 percent of the respondents.

Source: PwC

Factors unlikely to drive future investment include India’s inability to support domestic companies going global; however, according to the survey, private equity funds are keen to support globalisation, as long as Indian businesses continue to leverage the country’s low-cost manufacturing and service base.

India’s private equity market is likely to revive over the next decade, with the help of a new government creating a consistent regulatory and policy environment and the consolidation of fund managers in the industry to between 70 and 80 players, according to Sanjeev Krishan, PwC leader of private equity and transaction services.

Hong Kong-based NewQuest is in market with its NewQuest Asia Fund II, which is targeting $330 million. The firm held a first close on $215 million at the end of 2013, Secondaries Investor reported.

Amit Gupta
Amit Gupta

The fund is focused entirely on the secondaries market and about one-third of the capital will be deployed in Indian funds or companies, according to Gupta. NewQuest will target funds that deployed capital between 2007 and 2008 in infrastructure and manufacturing companies and funds that invested in power companies in 2009 and 2010. Technology and healthcare are also interesting sectors.

NewQuest is joined by other secondaries firms that are starting to be active in the region. Partners Group opened an office in Mumbai last month, for example. The office will focus on the Partners’ direct private equity practice, but the firm intends to build out all of its alternative asset capabilities in the region, over the mid- to long-term, PEI previously reported.