The rupee will bottom out and begin to rise in 2012 as the “flight to quality”, which has drawn investors to the US dollar, Swiss franc and Japanese yen, will diminish once investors realise that the Indian economy is uncorrelated to the West and not as threatened by the crisis in Europe as much as originally thought.
This rising rupee will ultimately result in superior returns for private equity investments made in 2012.
The upcoming year should also see more activity in terms of private equity exits as inflation abates and lower interest rates loosen the purse strings of Indian corporations. This will make transactions and transaction financing more attractive for strategic acquisitions of existing private equity portfolio companies.
Additionally, as the Indian stock market stabilises in 2012, the possibility for exits through public offerings will also increase.
Ultimately, when thinking about India or growing economies in general, it is important to put things in context with other economies around the globe. India is forecasting 2011 gross domestic product growth of 7.25 percent to 7.75 percent. This is a healthy number and much stronger when compared with much of the rest of the world.
That kind of robust growth is expected to continue in 2012. Therefore, it is crucial for investors to have exposure to India. After all, given the economic challenges, you’re not going to get close to 7 percent growth from the economies of Europe or the United States any time soon.
Parag Saxena is the CEO and Founder of New Silk Route.