Indian private equity market will remain robust: Year-end prediction

Neeraj Bharadwaj, Managing Director of Carlyle Asia Partners, writes about the future of India's equity market.

It has been a successful year for Carlyle. We closed Carlyle Asia Partners V (CAP V) at US$6.55 billion, exceeding its target of US$5 billion and closing more than 65 per cent larger than its predecessor fund, Carlyle Asia Partners IV. With Asia accounting for more than 60 per cent of incremental global GDP growth, CAP V, as one of the largest Asia-focused funds, will be deployed across key countries in the region. To capitalise on the opportunities available in the private equity market, we have expanded our investment team by hiring Vikram Nirula in India and Robby Winarta in Indonesia as Managing Directors. 

The Indian private equity market remains robust with record exits in 2017/18, a significant number of private-equity-backed IPOs in the last three to four years, more control and buyout transactions, and enhanced corporate governance practices. 

India, a key market for Carlyle: India is an exciting market with strong macro drivers, including strong demographics (approximately 60 per cent of the population is between 15 and 55 years old ), growing consumption (private consumption is 58.4 per cent of GDP) and policies that are promoting a favourable business environment, such as the GST and the Insolvency and Bankruptcy Code, among others, all of which are likely to be sustained over the long term. If India delivers on 7-8 per cent growth in the next 10-15 years, there are several companies across sectors that are estimated to grow at around 20 per cent-plus. These factors have led us to increase our focus on the Indian market. Historically, we invested approximately 9 per cent of our fund in India, and now it has more than doubled to over 20 per cent. 
 

The evolving private equity investment landscape offers significant minority investment opportunities. This will continue to form a significant percentage of the deals in the country. We see a strong pipeline for buyouts or control transactions, including large corporate carve-outs and family businesses exploring exits. We have also seen founders and family businesses proactively seeking value addition from global private equity firms like Carlyle to help scale up their businesses. 

With the burgeoning consumer segment forming a key part of our investment thesis, we see immense potential in sectors that are driving strong growth in the market such as logistics, healthcare and financial services. With a strong Asian portfolio, we have tapped into our relevant industry experience and expertise to create value for companies across the region. For instance, our experience in investing in an e-commerce logistics firm in China has given us valuable insights for our investment in Delhivery Logistics, India’s largest third-party express delivery company. Value creation is a core part of Carlyle’s investment success in the Indian market. As part of our ‘OneCarlyle’ strategy, we leverage our global network of more than 1,625 professionals, deep industry knowledge, operating partners and portfolio intelligence to create and execute a customized value creation plan for each of our portfolio companies.

Plans for 2019: We continue to see attractive opportunities in many sectors in India such as financial and healthcare services where increasing penetration is the underlying long-term trend. For example, Indian households’ financial assets is around 0.1x  GDP while that in the US is around 4.3x  GDP. Similarly, India’s per capita healthcare spend is less than 10 per cent  of the global average. We also focus on export-oriented sectors that provide a buffer against INR depreciation, supporting IT and pharmaceutical companies on international expansion and acquisitions. 

Private equity as a percentage of GDP in India is lower than other comparable markets. With GDP growth, the outlook for private equity in India is attractive and we remain very bullish on the Indian private equity market as we continue to see many compelling investment opportunities.