Indian private equity: the ‘good, the bad and the ugly’

Luis Miranda of IDFC Private Equity says the Indian private equity industry is currently experiencing mixed fortunes, although the long-term outlook for the country remains positive.

The private equity industry in India can be described in terms of “the good, the bad and the ugly”, Luis Miranda, the president and chief executive officer of Mumbai-based IDFC Private Equity, told delegates at the PEI Asia Forum in Hong Kong today.

Speaking about the “good”, Miranda said one of the key upsides to investing there is that the country’s economy is still growing at a reasonable rate, albeit at a slower pace compared to last year.

India’s population of more than one billion will also stand domestic companies in good stead, he stated. A significant proportion of India’s population belongs to the working middle class, which is still growing and forms a very large pool of domestic demand, he added.

The financial meltdown is not much of an impediment to deal-making in India, Miranda said, since leverage has never been a very important component of deals in India, and furthermore the banking sector in India is relatively unaffected compared to its counterparts elsewhere.
The “bad” is the increasing amount of time fund managers in India and elsewhere are having to spend with their portfolio companies because of the troubled economic environment, said Miranda. Due diligence takes much longer now as well, he stated.

The “ugly” bit of private equity in India today is that many portfolio companies of private equity managers are struggling. Business plans for fund managers and their portfolio companies need to change, because the world has changed. For instance, he said, while investing in a shipyard was a good idea a year ago, it is not anymore.

Miranda also included within the “ugly” the likely possibility of increased regulation for the private equity industry in India. “The flavour of the month is that there have been excesses and that private equity is not regulated enough,” he said.