Indian economy is one which sustains itself on domestic investment and consumption rather than exports and foreign investment. Consumption accounts for two thirds of Gross Domestic Product (GDP) of the country. In the last years of the UPA government, there was capital flight from the country because the economy was slowing down and investor’s sentiments were low due to policy paralysis in the government. Once the BJP came to power with a majority of its own in 2014, the domestic investor’s sentiments became positive because they expected a stable and business friendly government in the centre for the next five years. Private equity investment in the country has been growing at a tremendous pace over the past 4 years.
According to data from Venture Intelligence, “Private equity (PE) firms have invested a record $8.2 billion across 158 deals during the quarter ended June 2018, up by 60 per cent compared to the $5.1 billion across 153 transactions in the same period last year. The investment amount in the second quarter of 2018 was as much as 112 per cent higher than the immediate previous quarter, which had recorded $3.9 billion being invested across 157 transactions.” A private equity (PE) firm is an entity which makes an investment in private equity (stocks) through a variety of loosely affiliated investment strategies including leveraged buyout, venture capital, and growth capital. The highest private equity investment came in Information Technology and Information Technology-enabled services (ITes) which accounted for 31 percent of total investment. As per the data from Venture Intelligence, Internet and mobile companies like Paytm E-Commerce ($450 million), PolicyBazaar ($236 million), and Swiggy ($210 million) were on the list of top 5 PE investments in technology during the second quarter of 2018.
Arun Natarajan, CEO of Venture Intelligence commented on the positive sentiment in the market. He said, “Not even five years ago, in 2013, $8 billion was the figure for PE capital that got invested during the entire year. Exceeding that in just one quarter shows the extent of the confidence bounce-back among investors for the Indian PE asset class, as well as in the macro environment. The recent strong exits from Flipkart and other companies, as well as the fact that the investments in the second quarter of 2018 have been spread across many sectors, lends confidence to the sustainability of the uptrend.”
Investor sentiment is high due to structural changes that this government has brought in the economy. Decisions like that of demonetization and GST made a significant blow to black money transactions. According to Economic Survey 2017, in the post demonetization period, the number of income tax filers had gone up from 6 million to 10 million. The government has also cleaned up the real estate sector which was a major destination for black money before RERA legislation. Now private equity investment is one of the best ways to get guaranteed returns, and therefore, investors are going for private equity investments. The investment in these companies will help them to grow faster which will result in the faster economic growth of the country. Moreover, it is more transparent and the government gets tax on the ‘returns’ on these investments. As a result of higher amounts of tax money coming in, more money in government coffers will go to public services like health and education which are in a dire state because previous governments had done very little to improve it.