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
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
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