After closing the largest fund in the Asia-Pacific region at $15.6 billion in April, EQT believes India will remain one of the most important markets for the global private equity firm.
The investor has deployed about $7 billion in the country over the last three years and sees the underpenetrated buyout market, coupled with a growing number of family-owned businesses seeking succession solutions, driving the next wave of private investments.
In an exclusive interview with Mint, Hari Gopalakrishnan, co-head of private capital Asia at , discussed what makes India an attractive destination for global investors, the firm’s long-term strategy on exits and deployment and the country’s inbuilt hedge against geopolitical headwinds in a near-hour-long conversation.
Edited excerpts:
Public market valuations have seen some volatility recently. Are private markets reflecting a similar sentiment?
For us as private equity players, we have the luxury to ignore short-term market fluctuations. In fact, they create opportunities for us to focus on our longer-term convictions. Even with all the current topical issues, India is still forecast to be the fastest-growing large economy this year and for the next two years. With the geopolitical situation getting better and oil prices already falling, I feel that India will do better.
However, at certain times in the market, we do expect a lot more sellers of businesses looking at private market solutions, and this year we are seeing an increase in those conversations. But India is really a long-term story. As I said, the country has been the world’s fastest-growing large economy for three years running.
We have 1.5 billion people, which is really 18% of the world’s population, so one in every five people in the world is in India. The median age is 28 years, so we have a young population. This young demographic is a structural advantage that will stay with India for many decades, so I’m optimistic about India. If we take a short-term view, we are likely to miss opportunities. The Indian market has the potential to grow by more than three times our current levels over the next two decades.
How do you view concerns that India may be lagging in the AI race? Has that changed your software-services investment thesis?
I don’t think India is lacking in the AI race. If you look at our technical technology talent, 16% of all AI talent is based in India, accounting for 16% of global talent. Moreover, AI is a multi-decade journey and there is still so much that we as a country can do especially with our Digital Public Infrastructure.
Our IT services companies will also benefit from operationalizing and implementing AI and that’s what a lot of our portfolio companies are doing. So, I feel that we are still in the early stages of AI. Every enterprise has to adapt to it, that gives us so much opportunity on data, cloud, and operationalizing AI which will help IT services growth.
Which sectors are likely to be key focus areas for the new fund?
Our business is based on multiple sectors. We’ve already had investments in healthcare and financial services. We are looking at more deals in pharma, industrial, tech and consumer, so we always believe in running a diversified program across Asia and within India.
We’ll develop multiple sectors, but I still feel very confident about the prospects of the IT services industry, even in this . With consumer and media, we also believe that sports are a good thematic for us, and India has some good opportunities where we are quite interested so we’ll see.
How has India fared in terms of exits and capital deployment?
While we do not disclose country-wise allocation, I would say India has been a strong-performing market. Last year, India was one of our best exit markets within EQT Asia, where we have returned close to $14 billion. A couple of years ago, India was one of the most attractive markets to exit, but this year may be the best market to enter.
We have invested over $26 billion in India since we entered the country in 1998, making it one of our most important markets historically. In the last three years alone, we have invested close to $7 billion.
In the seventh and eighth funds, India was the biggest market, and we anticipate the country to be a dominant market for our latest fund as well, although we don’t earmark capital geography-wise as it largely depends on the opportunities present.
What opportunities are you seeing on the ground today?
One theme that has emerged is that a lot more families are looking to divest their businesses, so that creates opportunities for us. They’re looking for good homes to help with the next phase of growth. So, I really feel that the trend of families looking for good homes for their business is positive for private equity.
Going by simple numbers, stood at $4 trillion but buyout volumes were only about $15 billion last year. Buyout volumes are still so underpenetrated in the country, constituting less than half a percentage of GDP. We are still in the very early stages, and there are so many vectors of growth, so we don’t have to do anything dramatically different.
Also, there are not many other places that are growing 6.5% annually with over a billion young working people.
Do factors such as rupee depreciation make you view India differently?
I would say that the currency risk is more topical this year than in previous years. One way to think about it is having dollar revenues in your portfolio really helps because it is margin accretive if you have dollar exposure, either through export-oriented industries such as industrials, tech services and pharma, and that creates an automatic hedge in the portfolio.
Broadly, India has a lot of competitive advantages, so it’s not a deal breaker for investing in India.