The author is Mr Srini Chakwal Managing Director Redclays Capital
The views expressed are his own ,any replication of this content is an offence.
Being an investor for the last few years, I have had the tendency to acknowledge the profoundness of author Robert Wibbelsman’s quote on investing. He had said, “The problem with the person who thinks he's a long-term investor and impervious to short-term gyrations is that the emotion of fear and pain will eventually make him sell badly.”
It echoes a classic scenario of investing in times like the last couple of years when the richest nations had to rely and even break their piggy banks to check if there were pennies left! We have seen a lot of fear and pain in the investor fraternity since the recession struck, but I feel that in an Indian context the future for private equity and venture capital investment activities will witness a significant increase.
‘Private equity and venture capital investments in India rose 41% in 2011 over the previous year - the highest since 2007. Last year saw 427 PE/VC deals worth $11.2 billion (around Rs.59,500 crore today), compared with 328 investments worth $7.96 billion in 2010’, according to data from research and financial consulting firm Four-S Services Pvt. Ltd.
So, specifically for 2012, the scenario is promising and I think the main factors which will accelerate investment will be the huge capital demand for infrastructure and energy sector. The global financial credit crisis has not majorly affected the Indian Investment horizon and thus I see India continuing to remain a long-term investment market/destination.
The Outlook for 2012 is also bright because the Global agency Moody's upgraded the credit rating of Indian government's bonds from speculative to investment grade; a move that could encourage FIIs to increase their exposure in gilts and help companies raise funds from abroad at competitive rates. Also adding to the optimism is that the agency has upgraded the long-term country ceiling on the foreign currency bank deposits from Ba1 to Baa3.
But a word of caution.
The year will be demanding. This is largely because I also believe in the strong notion in the investor sorority that the private equity segment is in a phase where it has to choose the right path and by the end of 2012, we will get to know who chose the right path. The year could definitely be a game changer.
This is mainly because there are several challenges. It continues in the form of the state of the stock markets and a consequent inability to exit through IPOs at a time when exits through mergers and acquisitions are also rare to come by. Also there have been a series of actions by regulators in the form of redefining tax laws governing investment from overseas jurisdictions, restrictions on convertible instruments for FDI and how they will be treated from a regulatory perspective and draft regulations, which seek to control PE operations in the country.
In all its diversity, India is complex and so it is for private equity. Competition is tough and in the PE business it is not matching the toughness of the competition that will work, it is acumen…and that will make all the difference.
