As predicted in the outlook for 2012, the year saw an overall moderation in private equity (PE) investment activity in India, despite a buoyant venture capital (VC) market.
A number of reforms to encourage economic recovery were announced by the Government later in the year, including a panel to review GAAR and its potential deferment as well as permission for foreign direct investment (FDI) in retail and some other sectors.
Other important initiatives included:
- Introduction of alternative investment fund (AIF) regulations
- Decision to bring PE in line with foreign institutional investors (FIIs) with respect to the capital gains tax on private company transactions
The PE industry in India is clearly in transition. After a period of deceleration that began in the second half of 2011 and continued into 2012, there are signs of positive changes in the industry.
It is still not clear if the equilibrium has been reached, but we expect that the market will determine its own balance in 2013 — both in the terms of number of PE fund managers and the extent of PE money that India can absorb annually.
Key trends in 2012
- Consolidation in the industry
- Longer deal cycles, but optimism still prevails
- Deeper prospecting and platform plays
- An increase in operating engagement with portfolio companies
- Holistic asset managers providing both equity and debt solutions
- Greater focus on pre-investment diligence and stress-testing the investment thesis
- Exits at the top of the agenda