Investment Outlook , Published Feb 17, 2019
Founder, MD and CEO at Multiples Alternate Asset Management.
Private Equity has also been a more stable and preferred source of capital with far lesser volatility in year-on-year investments compared to the corporate sector or FII investments.
India will triple its economic output in the next 10 years driven by three powerful factors; Data & Technology, Entrepreneurial talent and Private risk capital (PE/VC). It will disrupt and re-shape various sectors of our economy, fuelling sustained growth and in the process provide an enormous opportunity for HNIs to grow their personal wealth. It is time for HNIs to wake up to this opportunity, have confidence in domestic fund managers and partake in this wealth creation journey.
India will triple its economic output in the next 10 years to become a $6 trillion economy, the third largest in the world. This signifies an enormous opportunity for HNIs who invest in the right assets to grow their personal wealth.
Foreign investors, have invested over $500bn into India over the last 20 years, through the route of portfolio investments and FDI, clearly indicating the huge wealth creation opportunity in India. Domestic wealth, on the other hand, has witnessed a mixed trend. While its participation in public equities has increased significantly (thanks to “mutual fund sahi hai”), its presence in private equity is disappointing and close to negligible.
Let us look at why foreign investors are so bullish on India. India’s accelerated growth in the next decade will have three powerful factors driving its story:
These will disrupt and re-shape various sectors of our economy, fuelling sustained growth and in the process, create and redistribute vast amounts of wealth.
Technology & Entrepreneurship
India is undergoing a technology revolution. Majority of India’s population has come out of internet-dark only recently. Over the next few years, we will see an unprecedented transition of this populace from mere free content consumers to active online users, who will execute simple and complex day-to-day activities with the help of the internet.
The entrepreneurial landscape in India is changing dramatically – young talented individuals with the hunger to succeed, the courage to challenge tradition and the nimbleness to adapt rapidly are making forays into new ventures in significant numbers.
Let me give you a few examples:
And the list goes on.
In my view, India’s ‘unicorn’ production has only just started, and it will not surprise me if we produce 100 unicorns by the turn of the next decade from about 26 today!
Private Equity is rising
Let us look at the global scenario first. According to research published by Bernstein & Goldman Sachs earlier this year, USA is seeing the biggest shift of wealth creation – away from the public markets to the private markets. Private equity deal activity has grown continuously over the last-decade, whereas public markets are shrinking with the pace at which listed companies are buying back stock, reaching an all-time high in 2018.
Companies in USA are now raising about twice as much money in private capital markets, and waiting about twice as long before they go public. As a result, Private Capital is appropriating more of the early growth and wealth creation from these disruptive businesses. Uber ($70bn), AirBnB ($30bn), SpaceX ($25bn) are all private and don’t seem to have any imminent plans of accessing public markets.
A similar story follows in Europe (Auto- Group – $4bn, Deliveroo – $8bn), and Asia (GrabTaxi – $11bn, Go-Jek – $2bn). India will be no different.
According to data from McKinsey, Private Equity’s contribution to capital raising in India has gone up from 20% in 2001–05 to 31% in 2006–10 to 46% in 2011–14.
The nature of Private Equity’s engagement with businesses has matured. From being mere providers of capital to early stage companies two decades ago, the Indian PE industry, today, is a full-fledged business. It invests across stages, industries and styles, be it incubating platforms, or taking control of businesses or being a reliable and trusted partner to young entrepreneurs looking to build futuristic businesses.
So, what does this mean for domestic wealth? And what should Indian HNIs do?
With less than half a percent of Indian HNI wealth invested in Private Equity, participation of domestic wealth in India’s Private Equity industry is negligible. Compared to this, globally HNIs allocate about ~20% of their wealth to alternative assets. If it remains this way, I am afraid, Indian wealth will miss the biggest source of wealth creation in the next 10 years.
The good news is that there are signs of this changing. Today, there are intermediaries and wealth advisors who are selling private equity actively, and the acceptance of private equity as an asset class is increasing among India’s wealthy because of the returns that fund managers have generated so far.
If India’s HNI’s do not move fast enough, then in the next 10 years of growth, when India goes from $2 trillion to $6 trillion economy, we would have handed over a lot of the value that our country will create to foreign capital providers. It is time for our HNIs to wake up to this opportunity, have confidence in domestic fund managers and partake in this wealth creation journey.
Investment Outlook 2019