There is scope for consolidation

2016 was a year of radical changes in corporate mindset driven by conducive policy changes taking effect. With the GDP (gross domestic product) per capita growing at high single digits or better in India, manufacturing across sectors has witnessed a meaningful upside. The government is spending in a very systematic way. There are well laidout plans of how they are saving on oil subsidy and allocating towards rural infrastructure, highways, ports and railways. This will gradually start showing growth across sectors and it has already shown green shoots in cement and steel. This has had a multiplier effect in employment, construction equipment, taxation and revenues.

We now see a very clear path to realising returns in India and sending money back to investors. This is conceptually a huge sign of confidence and will help us bring in a lot more money into the country. There is an increasing sense of confidence with the pickup in capital markets and interest by strategic investors. There has been a lot more activity than we anticipated this year in our industry.

Broadly, the approach for private equity players in the coming year should move towards strategic solutions that involve partnering with promoters to help them find ways that can help them grow, de-consolidate and go global where there is scope. Investments in 2017 should strongly focus on these than on sectors that are broadly considered to be fashionable.

The current period is highly opportune for private equity players. There is immense scope to focus on deals that are beyond the purview of banks. This can be done by shifting the focus towards operational value add, larger deals and break away from thematic play and cheaper sectors.

With regard to sectors, manufacturing is looking exciting and there is operational ease thanks to the government’s concerted efforts to develop a conducive environment. We are also inclined towards the financial services sector. If there is a buyout opportunity or the scope for a significant majority or demerger of a certain unit of a conglomerate, we will certainly be interested.

The focus is shifting towards return on economic capital, return to shareholders, total shareholder return and these are opening a whole new array of opportunities. Investors are more comfortable with governance, transparency, opportunity and private equity is expected to bridge the requirement for growth capital. The challenge now is to find opportunities where the market is big enough, there is scope for consolidation and investors are looking at reduction in cost of capital. Overall, consolidation is key and an intellectual approach towards investment will accelerate success in 2017.