PE/VC investments leap in Sept quarter Trade seeks greater access to China mkt

Exporters look for positive outcome from Modi-Xi meet

September quarter has seen the best quarterly performance of private equity funds as infrastructure and real estate continued to attract investments. However, exits were 78 per cent lower compared to the same quarter last year.

The September quarter recorded investments worth $16.4 billion across 289 deals, highest ever funding for a quarter. This was 69 per cent higher than $9.7 billion recorded in the same quarter last year and 37 per cent compared to $12 billion in June quarter, as per the data from EY.

The outperformance of PE/VC investments is mainly attributable to the record high funding of $7.8 billion in infrastructure and real estate, which is 4.4 times the value recorded in September quarter last year. The two sectors accounted for 48 per cent of the total investments.

While investments in real estate at $2.5 billion increased by 194 per cent over $863 million, investments in the infrastructure stood at $5.3 billion, which is 5.9 times the investment in the same quarter last year.

The PE/VC deals of $40.3 billion in the first three quarters of 2019 were 7.4 per cent higher than the entire investment of 2018.

“The deal flow in 2019 has been good with each successive quarter being better than the preceding one. As a result, PE/VC investments in 2019 stood at $40.3 billion at the end of the third quarter, 7.4 per cent higher than investments recorded in entire 2018. The strong growth was primarily driven by investments in the infrastructure sector that accounted for 32 per cent of all PE/VC investments in 2019,” said Vivek Soni, Partner and National Leader Private Equity Services, EY.

However, unlike investments, exits did not see the same momentum as in 2018. In 2019, year-to-date PE/VC exits totalled $8.1 billion down from $8.5 billion in the same period last year.

Exits declined by 78 per cent to $3.9 billion in September quarter against $18 billion in the year-ago quarter, mainly due to the $16 billion FlipkartWalmart deal. If this is excluded, exits in Q32019 are almost two times the value recorded in Q32018.

According to Pankaj Chopda, Director, Grant Thornton India, the regulatory and policy framework continues to be favourable for heightened PE deal activity. “There is a strong desire among PE players to invest in India. Infra, startups, e-commerce, IT, manufacturing and real estate sectors have demonstrated attractiveness in attaining PE funds. While policy actions and missteps have played an important role in shaping the global economic events and their impact on market sentiment, active policy stimulus will be the need of the hour to support deal activity in the face of adverse macro-economic indicators,” he said.

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The exporters are looking forward for some positive development from the meeting between Prime Minister Narendra Modi and Chinese President Xi Jinping, which is happening at a time when Regional Comprehensive Economic Partnership (RCEP) negotiations are going on. While there are a lot of reservations about opening up the Indian market for China, exporters want removal of trade barriers for products they ship to China.

While the US-China trade war presents an opportunity for India to grow exports, China too sees India as a potential market.

“We largely export raw materials like steel and cotton, while China sends finished products to India. We want to protect our manufacturing sector from cheaper Chinese goods and want to export more value-added products,’ said Israr Ahmed, Regional Chairman, South, Federation of Indian Export Organisations.

“India has a trade deficit of $53 billion with China and hence that country should provide more easier access

to our products,’ said Sanjay Jain, former Chairman, Confederation of Indian Textile Industry.

According to him, China is a buyer of Indian cotton yarn and fabric. “Due to preferential tariffs, exports from Vietnam, Pakistan and Indonesia to China have been growing. From being the largest yarn exporter a few years back, we have lost almost 50 per cent of the exports this year. Similarly, China can buy more fabric

from India as it will not affect its domestic production,’ he said.

However, a free trade agreement in textiles presents a threat of increased synthetic textile imports from China. Similarly, agri exports present an opportunity as well as a challenge. India can grow its leather footwear exports to China, but China is a large producer of cheaper non-leather footwear.

According to Sharad Kumar Saraf, President FIEO, manufacturing costs have to be competitive to increase exports to China. “The important sectors that need to be focused are bulk drugs, engineering products, chemical products, etc, he said.

Even in gems and jewellery, India has a trade deficit of over $300 million as China exports silver bars, gold bars, rough coloured gem stones, rough pearls and buys lesser quantum of cut and polished diamonds, gold jewellery and polished coloured gem stones.

The trade is also expecting increased investments from China into the manufacturing sector. ‘China is exiting production of several goods due to higher labour costs and pollution concerns and it is shifting base to neighbouring countries. This presents an opportunity for India as we have a large domestic market as well,” said Ahmed.

In order to attract investments, plug-and-play policy should be in place in the manufacturing sector. Preapproved facilities for manufacturing can tap the opportunity that arises when Chinese companies shift production bases.