Private equity (PE) activity in India has reached a record high in 2017, with US$24.7 billion being deployed across 639 deals. An improving macroeconomic environment, coupled with greater regulatory certainty, has led to PE funds becoming more aggressive in their investments. The average deal size surged to US$42.8 billion, representing a 50 percent year-on-year increase. 2017 was also a landmark year for PE exits – the country experienced 259 exits valued at US$12.5 billion, a 30 percent increase from 2016. PE-backed IPOs
alone amounted to US$1.2 billion, which is expected to continue as IPOs are becoming the preferred exit route for investors.
The top five PE deals in India alone accounted for US$7.5. billion, which is 31 percent of India’s total PE investments in 2017. This trend of increasing deal size is expected to continue into 2018 as Japanese and Chinese investors, who have displayed an affinity for megadeals, allocate an increasing portion of their capital into Indian companies. The most significant of these deals was SoftBank Group Corp’s US$2.5 billion investment into Flipkart, which is India’s largest e-commerce platform.
A plethora of factors have contributed to India’s ascendance as one of the most promising countries for PE funds to deploy capital. The country has experienced strong GDP growth in 2017, surpassing most countries and growing at two to three times the global average. Furthermore, the country’s tax overhaul in the form of the GST bill was successfully passed in April 2017. This has led to investor confidence strengthening as the bill provided more transparency and accountability.
Moving into 2018, the return of Long-Term Capital Gains (LTCG) tax on listed shares will be a key driver of PE growth in India. PE funds typically invest in unlisted shares, which have traditionally had a LTCG tax of 10 percent while listed shares have been exempt from this tax. However, with a new bill imposing the same LTCG tax on listed shares, the parity in tax rates will increase the allure of PE funds and their returns relative to the stock market. Furthermore, insolvency proceedings for twelve large Indian companies under the National Company Law Tribunal will culminate this year and numerous PE funds, such as Blackstone, are preparing themselves for purchasing these distressed companies after the tribunal is completed. This would greatly contribute to PE deal flow in 2018.
The industry that is poised to experience the largest inflow of capital this year is insurance as the Insurance Regulatory and Development Authority of India (IRDAI) has recently permitted PE firms to invest in Insurance companies as promoters. The technology sector is also expected to have strong PE activity as developments in AI, robotics and digital payments will create opportunities for PE firms.
India’s PE activity in 2018 is poised to surpass the records set in 2017 as investors become increasingly confident about the growth prospects of the region. The country’s pro-business administration, favourable regulatory reforms, and unmatched demographic dynamics will continue to drive PE firms from across the world to deploy an increasing portion of their capital on Indian companies.
