Mid-market private equity (PE) firms need to adopt a sector-focussed approach to stand out in a mature Indian landscape, said a panel of industry experts at the VCCircle India Limited Partners Summit in Mumbai on Wednesday.
At a session titled 'Catch in the Middle - Mid-Market Growth Opportunities', the panellists said a sector-focussed approach helps add value to portfolio companies and entrepreneurs, besides helping manage portfolio firms better.
Jayanta Banerjee of ASK Pravi Capital Advisors moderated the session.
Gaja Capital's managing partner Gopal Jain said that firms need to have sector specialisation irrespective of the top-down or bottom-up approach.
"Every company needs growth capital. Having a sector focus helps value-add. Mid-markets [PE firms] need to build teams and be aware of the requirements of portfolio firms," Jain said, adding that portfolio firms also seek better valuation and track record of PE firms' past investments.
Srikrishna Dwaram, partner at True North, said that his firm pivoted itself to adopt a sector-focussed approach over the last two years from being sector-agnostic about two decades ago.
"This evolution has occured because Indian market has matured. Sectors and industries lacked depth about 15-18 years ago. We had a sector-agnostic approach, but even then, 70% of our investments were concentrated on three-four sectors based on past experiences," Dwaram said.
Inderbir Singh, principal at IFC Asset Management, said that despite the large team strength of the firm, it has waited for sectors to mature or turn around.
"Sector expertise is the right way to go," Singh said, adding the firm has struck deals in agriculture, manufacturing and the industrial space based on its expertise.
"If you are going mid-market and investing first time, if you do not know the sector, then its a recipe for disaster," Singh added.
Abhinav Dhall, executive director at Standard Chartered PE, acknowledged the sector-focussed approach but highlighted that sectors do not work in lockstep and can it prove to be a risky bet.
"Sectors go through a life-cycle," said Dhall, highlighting the different time cycles during which the IT and healthcare sectors boomed and declined.