Successful IPOs bolster investor confidence for exit: Darius Pandole

Infrastructure has investment opportunities estimated worth more than Rs 50 trillion, says industry leader

Investments in start-ups were a defining feature of 2021, said Darius Pandole, Managing Director & CEO, PE & Equity AIFs--JM Financial. In an interview with Ashley Coutinho, he said the digitisation of traditional businesses and new-age supply chain solutions will lead to opportunities for PE investors. Edited excerpts:

PE-VC firms invested a record $63 billion in Indian companies during 2021, registering a 57 per cent rise over the previous year. What are the factors that have fuelled this growth and what is the outlook for 2022?

The economy showed remarkable resilience in the second half of last year on the back of an effective vaccination campaign and expectations of a faster return of business activity to pre-pandemic levels. Large global funds were sitting on all-time high levels of dry powder and were deploying capital at aggressive valuations. Further, investments in start-ups were a defining feature of 2021. India added 44 unicorns and overtook UK as the third-largest origin of unicorns in the world. Significantly increased exit activity during the year further enthused PE funds to increase their focus on deal making. A combination of these factors resulted in hectic deal-making which steadily gained steam throughout the year and is expected to continue in 2022.

What are the emerging opportunities for PE players this year?

There is likely to be continued focus on digital evolution across industries encompassing all aspects of life from digital lending, from fintech companies to D2C commerce in the consumer domain to continued innovation from companies providing services in edtech, agri-tech, consumer tech and healthtech. Improvement and scaling up of the logistics and supply chain infrastructure in the country could potentially benefit large parts of corporate India. We could see a fundamental shift in the agriculture sector driven by the increased internet and smartphone usage in rural India. The agri-tech space is a huge opportunity unfolding in India. Developments in the electric vehicle eco-system will provide a tidal wave of opportunities across the EV value chain from auto components to the charging infrastructure to the vehicles themselves.

How has Covid shaped the investment strategy of PE players?

The long-term growth opportunity in India remains attractive. Long-term investment strategy will be driven by the emergence of new investment themes, many of them emanating out of the Covid situation, such as greater work from home requirements, increased shifting of manufacturing activities into India, higher requirements for regular health and medical diagnostics services, and renewed focus on health and wellness. All these trends can potentially throw up massive business opportunities across sectors like technology, manufacturing, healthcare, consumer and financial services. In addition, the increased digitalization of traditional businesses and new-age supply chain solutions will lead to significant opportunities for PE investors.

You have said earlier that the opportunity set for investments in infrastructure is massive. Could you elaborate on that?

There is an immediate requirement for massive infrastructure investments estimated at over Rs 50 trillion ($750 billion) across India. Huge investments are required in almost all segments of infrastructure such as the national highway network in India (only 25 per cent is four-laned), development and upgradation of airports, and initiatives such as ‘Smart Cities Mission’ and ‘Housing for All’ which requires construction of more than 40,000 houses a day until 2022. Power generation and railways provide investment opportunities of similar magnitude with a much- needed focus on clean, sustainable sources of energy to meet the Nationally Determined Contribution targets on climate actions.

Exits surged dramatically last year. What is the outlook for exits in 2022?

Exit activity is expected to remain strong in 2022 supported by ample liquidity and positive market sentiment. Numerous successful listings of startups, including Zomato, Nykaa and Policy Bazaar, bolstered investor confidence in Indian capital markets as a viable avenue for exit. This momentum is expected to continue in 2022 with a number of big-ticket IPOs lined up. 2021 also saw healthy secondary transactions and a massive uptick in M&A activity especially among digital businesses.

How are PE firms evaluating companies based on the ESG parameters?

ESG is becoming increasingly important in the overall investment landscape. This was initially driven by some of the large global investors that invest in PE funds as well as invest directly across geographies. However, it has now been recognized, acknowledged and adopted by a host of investors and will emerge as an important aspect of the overall investment evaluation process.

What are your expectations from the upcoming Budget for the PE/AIF industry?

The government has been quite proactive in encouraging the PE-VC ecosystem. We expect a uniform average rate of long term capital gains tax for unlisted and listed equity, push towards mobilizing larger capital pools from domestic institutional investors and rationalization of personal income taxes at all levels to spur consumption.