ASSIGNMENT 2, GROUP 4

The Significance of Private Equity

Comment on the significance of an expanding private equity market to

the economy and society in India.
____________________________________________________________________________

The Private Equity in India has been growing at a significant pace and is
second only to China as the effective market destination for Global PE.
The value of PE Investment has grown from $0.78 billion in 2001 to
$10.20 billion in 2011 and number of deals from 73 in 2001 to 460 in
2011.
The Major industries where PE investments have been made are:

IT & ITES
BFSI
Media and Entertainment
Energy
Education
Manufacturing
Healthcare and Biotech

PE Markets has played a significant role in the growth of Indian economy

by helping SME as mentioned below

PE backed companies grew at a significantly higher rate as compared to

Non PE backed firms as well as Market indices like the Nifty and CSE
Midcap.
Similarly wages at firms backed by PE firms grew at a much higher rate
than non PE backed firms
PE/VC Investment, when chosen an leveraged well, can help Indian
companies Innovate, create new businesses and accelerate growth in
several ways that add significant value to the Indian economy.
PE firms backed companies utilize capital to expand their operations
internationally and improve their sales in export markets. Also, fund
managers use their international networks to help portfolio companies
reach out to newer markets.
PE catalyses innovation
PE backing increases the confidence of various stakeholders including
customers in the company. Ajith Kamath, CMD Arch Pharma
In most cases PE funding was a necessity

From fear of a hostile bid from private equity, every management team is
working hard to make sure its company is performing well, and does not
present a target for the billions of pounds waiting to be invested.

It helped in improving efficiency in business processes

It helps in creating liquidity in the economy
It opens up new business opportunities
It has a positive impact on top and bottom line
It helps in implementing proper Corporate Governance practices in
the firm
It provides access to additional Capital
It also helps in scaling up business rapidly
It is providing global exposure to the business
Entrepreneurship opportunities stopping brain drain
Increasing investment of PE funds in Healthcare, Education and
Biotech etc.
Promotes entrepreneurship and creates jobs when the firm expands
Help in improving efficiency due to strategic focus
In a growth hungry economy with a scarce funding environment,
PE offers another engine for economic growth.
Over the years the VC market has expanded and PE market
contracted because of lack of investment in infrastructure projects
due to govt. policies
Reduction of capital gains tax on PE firms in India
Investors are cautiously optimistic but returns may not come soon

Some of the negatives of PE firms

Create value for companies though do not focus on succession

plans and employee development
Less disclosures and Corporate Governance practices followed
Income disparity between rich and poor because the PE firms take
a huge amount of payouts
Adverse impact on employees due to layoffs

Future scenario and Recommendations for better utilization of advantages of PE firms

Strong market fundamentals make India an attractive destination for PE investment. However,
the rush to India is also fuelled to some extent by a lack of attractive investment opportunities in the
mature markets of North America and Europe, where deal activity remains sluggish and credit
conditions are tight.

India's PE market will continue to grow at a healthy double-digit rate over the next few years.
But absent some fundamental changes on the part of promoters and regulators, its long-term growth
potential could be constrained.

Each of the major parties to private equity's fate-PE firms, promoters and regulators- can take
steps today to put in place conditions that will ensure that the benefits of private equity's potential
are achieved.

PE firms need to sharpen their capabilities along each phase of the investment life cycle, from
deal sourcing to exit. As competition among PE firms in India heats up, it will be those that can
differentiate themselves through sector specialization, enhanced due diligence and an ability to
identify value-creating opportunities that will be positioned to make the right investments at the right
price.
Promoters can get far more value out of their relationship with PE investors by choosing
partners who are aligned with their vision for the future of their business and have the expertise to
help them realize it.

Indian businesses that have not yet worked with VC and PE investors-or have been reluctant
to accept funding from these sources-may want to give private equity a fresh look.

Regulators can have a major influence in advancing the potential benefits of private equity in
India by lifting the cap on the open-offer rule and liberalizing disclosure norms when potential
investors need confidential information to conduct their appropriate due diligence.

Overall, Indian businesses and regulators need to take visible steps towards removing the
barriers-legal, cultural and attitudinal-that continue to block private equity from delivering its full
potential.