India top drawfor global PE investors

Country was ninth in EMPEA survey’s market attractiveness rankings in 2013

India has emerged as the most attractive emerging market for GP (global partners) investment over the next 12 months, according to a recent survey by EMPEA, a global industry association for private capital in emerging markets.

India is followed by Southeast Asia and Latin America (excluding Brazil). India was ranked as low as ninth in the survey’s market attractiveness rankings in 2013 but has been steadily climbing the ranks since.

EMPEA’s Global Limited Partners Survey features views of 127 representatives from 106 limited partners (LPs) on the emerging markets private equity (EM PE) asset class.

Over the past four years, LPs’ satisfaction with the performance of their EM PE portfolios has gradually declined. Only 10 per cent of respondents indicated their portfolios had exceeded expectations, compared to 16 per cent in 2014. LPs are most bullish on Emerging Asia-focused funds. The highest percentage of respondents believed 2016-vintage PE funds focused on Southeast Asia, China and India would deliver returns of 16 per cent or more.

For the second year in a row, the highest percentage of respondents planned to begin or expand investing in Southeast Asia and India. Furthermore, only four per cent and five per cent of respondents planned to decrease or stop investing in these two markets, respectively.

“Though fundraising for India has increased in the past two years, fundraising totals for Southeast Asia-focused vehicles historically have not reflected investors’ bullish plans and, with the exception of the VC segment, the region remains hampered by a limited number of established fund managers exclusively dedicated to Southeast Asian markets. Together, these factors suggest LPs may be turning to larger pan-Asian GPs to access Southeast Asian opportunities,” the report said.

GPs raised $4.7 billion and $3.7 billion for India-focused private capital vehicles in 2015 and 2016, respectively—the highest annual totals since 2008.

Historical performance and weak exit environments were seen as key deterrents to investing in India compared with most other emerging markets, the EMPEA survey report said. But, given India’s top ranking in terms of market attractiveness and strong fundraising record in 2015 and 2016, many LPs were ready to give the market a second chance.

While China and India fight off a reputation as oversaturated, many investors in Southeast Asia remain challenged by the perceived limited scale of the opportunity and dearth of established fund managers, which may be problematic given the increased number of investors who want to enter the region, the survey said.

PE/VC (venture capital) investments touched a record $11.2 billion in the first half of 2017 against $8 billion in the same period in 2016, according to a report by EY India. This was driven by large deals, with eight $300 million-plus deals in the first half of this year compared with seven in all of 2016. Financial services was the top sector in both investments and exits.

“The government’s focus on ease of doing business in India, clarity in taxation for foreign investors, prospective applicability of sensitive matters like withdrawal of Mauritius/Singapore treaty benefits, no high-profile tax litigation in last few years, effective GST implementation, expected political stability and investors’ comfort derived from continuous and rational implementation of reforms, are factors that add up to India’s attractiveness among emerging markets,” said Bhavin Shah, partner and leader–financial services tax, PwC India.