India may have received a massive $21 billion from private equity investors last year but the country still has some distance to cover before it emerges as the top investment destination. That was the general view of participants at the VCCircle India Limited Partners Summit 2016.

While the investors indicated the confidence they have in the country in view of the improving macro-economic situation, they remain cautiously optimistic.

The seventh edition of VCCircle’s flagship summit hosted more than 250 delegates on the first day. The summit was attended by industry stalwarts from financial institutions, deal makers, consultants and corporate houses, among others.

The opening panel was moderated by Roopa Purushothaman, managing director and head of research at Everstone Capital Advisors. Other panelists included Saugata Bhattacharya, chief economist at Axis Bank; Saurabh Mukherjea, CEO of institutional equities business at Ambit Capital Pvt Ltd; and Bharti Gupta Ramola, markets and industries leader at PwC India.

The participants said that although states are competing with each other more actively for investments and the government is undertaking reform measures, real difference is yet to be seen. While Bhattacharya said that the road and rail sectors may see some on-ground activity in next six months, Mukherjea said that there is a deeper problem with data and real economy indicators not moving up.

The day also saw discussions on valuations, private equity returns and ease of doing business. Many Limited Partners (LPs) said that multiple avenues to raise money have led to increase in valuations. “Public equity markets have potentially outstretched the opportunity in the PE market, which is very challenging,” said Simon Hopkins, CEO at Milltrust International Group, during a discussion on the changing dynamics of LPs and general partners (GPs).

Lucian Wu, managing director at HQ Capital, said that entry valuations in India tend to be high compared to other Asian markets. “About two-three years ago India was not so attractive to put in allocation but that has changed,” he said.

Another panel compared India and China. The panel, which was moderated by Tarun Bhatia, managing director at due diligence service provider Kroll, concluded that India needs to learn a lot from its Asian counterpart. Discussing the issues plaguing the two markets, law firm Trilegal’s partner Nishant Parikh said: “In India, most PE houses have faced issues of enforceability of rights while in China the stock market meltdown was not handled maturely.”

Participants said LPs want a region’s returns to be compared at a global scale and not against a country or region. “We are advising our clients to compare returns against global benchmarks and not just other Indian funds,” said Bryan Stewart, director of Asia-Pacific emerging markets at Liberty Global Partners.

Global PE fund managers dismissed the idea of comparing India to China as they believe the two markets vastly differ. "Even with slowed growth China will add three to four times the economic output of India every year for investors".We have a lot to learn from how China reached the stage to be so influential,” said Amit Chandra, managing director at Bain Capital Advisors.

Participating in a panel discussion on the role of risk and rescue capital in deleveraging India, Trilegal partner Harsh Pais said that skewed incentives are making it difficult to bring capital to India. MK Sinha, managing partner and CEO at IDFC Alternatives, said that banks are reluctant to write down their bad loans and are themselves providing rescue capital. “But in future, banks will be forced to write off investments,” he said.

The participants suggested a number of measures such as technology upgradation, fixing the capital structure and improving the cost structure to solve the problem. “The capital is large, eager and available. We are sitting on a significant wave of write-downs to come and we can take huge advantage from it,” said Mintoo Bhandari, senior partner and managing director at Apollo Global. 

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