Private equity (PE) investors’ sentiments towards India are turning significantly optimistic. A PricewaterhouseCoopers India report based on a survey of 40 PE firm partners estimates that India has the potential to get PE funding of $40 billion (over ₹2.36 lakh crore) by 2025.

Future PE investments would be led by India’s continuing consumption story, realistic valuations, globally competitive businesses, rising private entrepreneurship, the ability to support businesses going global and innovation, said the report.

Eager to support solid cos Sanjeev Krishan, Leader — Private Equity PwC India, said, “Investments will see a spurt in the infrastructure and manufacturing sectors over time. PE investors are also eager to support solid Indian companies with proven local presence, to expand in overseas markets.”

The next investment cycle would see consolidation in the PE space with 70-80 players forming the universe, said the report. Due diligence on companies would become more rigorous and governance quality would become a differentiator.

‘Clean’ deals — deals where the investee company has promoters with proven quality of managing their businesses coupled with the highest standards of governance — would command premium valuations, said the report.

PE firms would use strategic sales more for exiting their investee companies over IPOs/ secondary sales. There would be greater alignment of interests of promoters and PE firms with exits being planned well in advance.

Mature forms likely More promoters would be willing to cede control and become open to ideas from external sources (PE investors) in key decision making, such as hiring of CXOs.

More mature forms of investment, such as buyouts, would start taking place, with early stage opportunities in angel/venture capital existing simultaneously, the survey said. Investment opportunities would hence see a greater degree of segmentation between the various classes of investing — large buy-out funds, late growth investors, early stage investors and venture capital firms.

Change in promoter behaviour is expected to trigger an increase in buy-out opportunities. Indian companies looking out for the next level of growth due to lack of capital, paucity of management skills and necessity of a fresh thought process fall in this bracket. Companies where the next generation is unwilling to take over the reins are also potential investees for PE firms.

PE firms would focus more on retail/ consumer, IT/ITeS, business services, healthcare, infrastructure and manufacturing in the coming decade, the report said.

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