FMS symposium on Private Equity discusses road ahead after the Wall Street meltdown

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MBAUniverse.com News Desk |
July 24, 2016
To take stock of the recent turmoil in the global financial markets, the Finance Society of Faculty of Management Studies, Delhi organized the Private Equity Symposium 2008 on September 20, 2008.

The daylong symposium witnessed experts from the industry and the government share their views on the Private Equity sector. The Key note address was delivered by Mr Gopal Nair, Director, Capital Markets, Ministry of Finance. He said that the role of the regulator in these challenging times should be that of an innovator. One should respond to the crisis in a well planned manner. He said that India has had a relatively limited impact of the turmoil affecting rest of the world as we have adopted a policy of moving cautiously. He mentioned about the changes in financial sectors being gradual. He pointed out that the regulators needed to look into market stability, and financial inclusion.

This was followed by a discussion on "Private Equity: The Road ahead for Brand India". The panel comprised of Mr Randhir Kochhar, Director, DE Shaw India Advisory; Mr Sanjeev Krishan, Executive Director, PwC; Mr Sandeep Malhotra, Senior Director, ICICI Ventures; Mr Pinaki Bhattacharyya, Principal, IDFC Private Equity; Mr Ajay Kapur, CEO, SIDBI Venture and Mr Shailesh Singh ,Director,2i Capital.

The panel started the discussion with the topic of global slowdown which has moved towards the meltdown during the last week. Its impact on Indian PE industry was clearly visible. The PE investments have risen from $ 8 billion in 2006 to $ 18 billion in 2007, but in the present year the figure has been around $ 6 billion till date.

The fundamentals of Indian Economy were discussed and were pointed out to be sound. The growth of sensex from level of 5,000 to 20,000 in a very short time was pointed out as a reason for the de-focusing of PE firms. The level of valuation was unrealistic, experts said. The meltdown is an indication of things getting more realistic. It is a good time for new investors and companies to enter the market.

Three major challenges for PE firms were identified: the cash crunch, shortage of skilled people and delays in profit bookings. The number of PEs has shot up from 70-80 three years back to 300 now. This has led to a talent crunch.

The raising interest rates will make it difficult for the PEs to get funds. This will lead to need to select the investment opportunities after greater scrutiny. This will in turn require the industries to employee better corporate governance, whereby they will need to be more transparent.

The panel pointed out that PE needs to focus more upon Small Scale Enterprises. These industries have PE as the major viable source of Fund. It will be profitable to invest in them due to their nimbleness, opined experts.

The second session at the symposium was on the topic of "Growing Chase for the right Buyer". The panel consisted of Mr Rahul Surana, MD, Standard Charted PE Advisory; Mr Ravi Shankar P, Director, Global Market, Deustsche Bank; Mr Ajay Tondon, Director Citi Venture; Mr Amit Khurana, Head Equities Collins; Mr Sunil Godwani, CEO and MD Religare Enterprise Ltd, Mr Siddhartha Nigam VP & North Regional Head-I Banking, Edelweiss Capital and Mr Tarun Khanna, Director, I Banking, Yes bank.

The speakers from diverse backgrounds were able give the difference in perspective of PE for the major stakeholders.

The impact of last week's financial turmoil was reviewed by the panel. Discussing about the impact of this on PE funding, the point brought out was that now a more careful selection of companies will be made. Panel agreed that Indian market has got lots of opportunity but it is lacking in maturity. The firms which show ethics and transparency will be the once chosen.Global firms which have limited knowledge of India will invest in such firms which follow the set standards with due diligence. There is always a gestation period of around two years before profits are made. One needs to look into fundamentals, quality of management and resources before investment.

Discussing about the new avenues of funds, the panel pointed out there could be major influxes from Middle East. The recent events have lowered the leverage of traditional foreign investors and the risk taking abilities have gone down. The upside of this is that the expectation of the PE investors have gone down and become more realistic. They are now willing to stay invested for a longer time. This will help in establishing a better synergy.

Discussing about the future of Investment, the panel pointed out that real state might slowdown further. The areas marked out as promising were Out of Home Advertising, Food Processing, Family Run Businesses and Renewal Energy.

Answering the question about how much time does it take for a PE firm to get returns, the panel said it depends on the nature of Investment. If the investment is made into a new firm where the equity stakes acquired are high, it will take longer time for the returns to come. While to get quick returns, the companies can acquire limited equities in well established companies. The Panel concluded that India still needs to go a long way. The future deals need to be better structured. The Private Equity companies must plan for long term investments and provide more managerial support.

India's leading management portal was the Official Management Portal of the FMS symposium.