India’s Growing Economy Influences Private Equity Investment Patterns

An outline of India with a stock chart superimposed on it.

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India is definitely the shining light of emerging market economies. The ever-growing GDP and a concurrent rise of the middle class have resulted in increased spending across the board. Indian consumers are bringing a lot of buying power to the markets.

These factors have sparked a major interest in the nation from private equity companies, some of which have even changed their approach to investment there.

Bill E. Ford, President and CEO of General Atlantic, said a couple of years ago that the firm typically purchases a minority stake of 10 to 40 percent of the Indian companies in which they invest. But in its recent acquisition of investor servicing and asset management company Karvy Computershare, the company picked up around a 74 percent stake in the company.

General Atlantic isn’t the only PE firm changing its strategy in India. TPG has merged its India investment team from two arms, TPG Capital and TPG Growth, in order to “adopt a more focused approach to investing in India,” according to LiveMint.

The TPG Growth team looked at deals less than $70 or $75 million, while bigger deals went to the TPG Capital team. Depending on the size of the investment, the money will be drawn from either the Capital or Growth fund.

In 2016, the total PE deal value in India was $16.8 billion, primarily in the banking, financial services, and insurance (BFSI) industry, which continues to be a very attractive sector for investors.

“India’s asset management and corporate shareholders’ service sectors are poised for rapid growth and continued development, supported by a number of compelling secular trends,” said Sandeep Naik, Managing Director and Head of India & Asia-Pacific at General Atlantic.

Chief among these is India’s growing entrepreneurial class. “If you think about what is happening in India today, entrepreneurs are building India, and India is giving birth to entrepreneurs,” Naik said.

Add to that the fact that 100 million-plus bank accounts are enabled by mobile phone, and benefits are transferred directly to people’s bank accounts using their mobile phone number and a unique identifier. “It’s a unique platform—there is no other country in the world that has this scale of mobile-driven bank accounts with the ability to transfer money and services directly to the beneficiary without all of the leakages that have plagued the sector for many, many years,” Alok Kshiragar, a senior partner at McKinsey Global Institute, said in one of the company’s podcasts.

New asset classes such as venture debt and distressed assets are emerging in India, too, adding more opportunities for investors to deploy their capital. And TPG is on that ball. Last month, Bloomberg reported that TPG flew 65 of its limited partners to meet policymakers and companies.

“Distressed [assets] opportunities in India are more suited for private equity, as you have to own the entire capital structure and need to make management changes,” Puneet Bhatia, TPG Country Head for India, told Bloomberg last year.

Meanwhile, Naik said that unlike TPG and many other PE firms with a presence in India, General Atlantic is not interested in distressed assets. “We invest in partnerships, in people, we try and identify great people that will treat our money as their money and help scale companies…and we will continue to invest behind growth in India.”

Ultimately, both General Atlantic and TPG seems to be refocusing their investment strategies in India, but each company has a very different approach. Which one comes out ahead remains to be seen.

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