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Know the future of private equity funds in emerging markets

21, December 2016 | Prashant mehta

There are challenging times ahead for the emerging markets owing to increasing macroeconomic stability in the developed markets along with declining growth and various geopolitical changes. That said, the emerging markets, popularly known as the BRICS nations, still are a very lucrative investment destination for Private Equity (PE) funds despite the volatility.
Over the past decade, PE investors have continued to spot long-term investment opportunities in the emerging nations owing to factors such as rising middle class, favourable demographic dividend, and high disposable incomes. Therefore, the future for PE funds in the emerging markets is very bright.

In the past few years, India has become a highly popular emerging nation for PE investments. In fact, these are exciting timesfor PE investments in India owing to a stable, policy-oriented central government coupled with a high percentage of young working class population. Top global PE fund shave either set up India-dedicated funds or are planning to increase India investment allocations in their overall global portfolios. This is ample testimony to India's growing potential as a popular PE destination.

Here are a few numbers that substantiate the points made above:
·  In 2015, India was one of the top global destinations for private equity (PE) and venture capital (VC) investment
·  PE investments received in 2015 were $22.4 billion, growing 47% YoY from $15.2 in 2014
·  PE investments grew ~32% over the previous highest, which was $17 billion in 2007
·  ~65% of the deal value came from banking, financial services,real estate,consumer technology,and insurance sectors
·  PE investments in consumer tech increased 46% to $6.9 billion.
·  In 2015, PE investment in BFSI doubled to $3.7 billion.
·  In 2015, PE in real estate grew 74% to $3.9 billion.
(Source: Bain & Co. India Pvt. Ltd)
The India Advantage for PE investors
One of the major strengths of the Indian economy over the years has been its abilityto withstand numerous global headwinds positively.Be it the Brexit vote, the demonetisation move, or the Trump surprise, the Indian economy always worked its way around such factors.
One of the major highlights in the India growth story and its emergence as a popular PE destination is the stable, policy-oriented central government ledby Prime Minister Narendra Modi.Constant attempts to bring in new reforms have helped the country largely in treading the growth path.
Many global analysts and top rating agencieshave consistently given their thumbs up to India's consistent growth story as a PE destination. These include Moody's Carlyle, Fitch, and IMF. They back India to grow steadily provided the government does not take its foot off the pedal and keeps coming out with more positiveinitiatives to boost the Indian economy.
A good example of such positive moves is the 'Make in India' initiative of the Indian government.This push for domestic production would act as a very potent tool to attract consistent FDI inflows. As per Moody's, net inflows from FDI into Indiain January 2016 were $3 billion, an all-time high. These FDI inflows have helped India largely in covering up its current account deficit (CAD).
Smart moves
Investment inflows would further increase owing to some of the smart moves made by the Indian government, which include:
·  Development of industrial corridors
·  Creation of investment and manufacturing zones
·  Building 100 'smart cities'
Moreover, inflows into the manufacturing sector of India will likely grow at a faster pacesince the government aims to increase the manufacturing sector'scontribution to GDP to 25% by 2022.
As per a Moody's Report, here's what the world's second largest PE fund, Carlyle said:
“India is the most attractive global investment destination, which offers the highest expected returns on incremental capital invested over ahorizon of the next four years”.
Carlyle further went on to state in the report that 'India's hour on the global macroeconomic stage has arrived. Investors should take notice'.
An IMF Report projected India's growth to touch the 7.5% mark by 2016-17 driven largely by private consumption and increase in industrial activity owingto lower energy prices and higher real incomes.Moreover, the Report stated that India would out pace China's GDP by more than 1%. Fitch corroborated with the views of IMF and Carlyle, backing India to grow 7% in the current fiscal on higher disposable income and better chances of a normal monsoon.
Overall, India's growth story in the past few years despite various global and local headwinds, clearly makes it a highly lucrative PE destination among all the emerging nations. Following are some of the major fundamental strengths of India, which support the India growth story:
·  Young demographic dividend and working population with rising income levels
·  Increasing online presence and consumptionlevels
All these factors make India one of the most lucrativecountries for PE funds that are looking to park their investmentswith a long-term horizon and strong appetite.

To know more about the future of PE funds in emergingnations such as India, visit us at http://www.altsmart.in/ 

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