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this podcast is brought to you by Indian
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knowledge at Warton please visit
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knowledge. won. up.edu India for more
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information India imagine was the theme
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of the 2008 Wharton India economic Forum
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that was held in Philadelphia recently
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the daylong event attracted several
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leaders including apj Abdul Kalam former
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president of India as well as CEOs of
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Indian companies nonprofit groups
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Consulting and private Equity firms
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Indian knowledge at Wharton brings you
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one-on-one conversations with these
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leaders today we are speaking with SRI
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Rajan who is partner and head of the
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private Equity practice at ban and
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Company s thanks for joining us thank
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you uh first question has the US
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financial crisis affected the private
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Equity investment uh industry and
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India so I think the way the impact uh
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is happening is primarily because of the
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fact that in India the stock market has
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also been impacted the private Equity
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industry is looking at what's happening
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in India very closely because valuations
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have come down in the last couple of
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months and what they're hoping is that
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at some point of time that these down
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these uh this downward Trend in
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valuations will have an impact in terms
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of the attractiveness of some of these
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assets so my perspective is that we
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haven't seen an increased amount of flow
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yet and it we haven't seen the impact on
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valuations yet on Indian companies but
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my perspective is that over the course
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of the next 2 or 3 months we will see
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that impact and my perspective is that
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we will see a lot more deal flow that
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will happen with private Equity firms in
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India is that very similar to what you
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think might happen in in other Emerging
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Markets as well like China I think it
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will I think the one big difference
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between India and other Emerging Markets
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like China is that over the last 3 or 4
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years there's been a significant amount
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ount of activity that's happened in the
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private Equity industry in India and
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that's not true for China so in terms of
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both volume and in terms of the quantity
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of private Equity uh money that's been
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put to put to use in India it's been far
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higher than China and I think given that
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I think that's the one basic difference
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uh that I think will lead to increased
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deal flow in China even in in India I'm
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sorry compared even to
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China uh what in India would you say are
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the most attractive sectors for
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investment at the present time I think
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if you look at the trend over the course
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of the last 3 or 4 years in 2004 2005
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the most attractive sectors were the it
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sectors so it companies boo companies
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and so on in 2007 the most attractive
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sectors real estate and infrastructure
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that's where the bulk of the money went
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in it's a little difficult to predict
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what will happen given what's going on
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with valuations my sense is that we will
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see a lot of activity across all sectors
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uh if valuation stick to where they are
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so my sense is we're going to see a lot
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more activity in manufacturing which we
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haven't seen a lot of over the course of
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the last few years I think India is
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becoming a manufacturing hub for a lot
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of a lot of sub sectors and so given
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that I think there'll be a lot more
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deals that will happen in manufacturing
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than what we' have seen and my sense is
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that services will come back as well as
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valuations of services companies also
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become more attractive I think we'll see
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a lot more deal flow over there in uh in
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in making Investments or actually
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evaluating investments in e markets like
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India uh what kinds of attributes should
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should uh companies or firms be looking
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for the the challenge with doing
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investments in India especially priate
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Equity investments in India is that you
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have to look at both the macro picture
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as well as a company very
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carefully and in many instances that
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information is not available very
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readily or not as readily readily as you
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might uh it might be in in in the United
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States for example and so one of the
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things that private Equity firms have to
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do is to really understand the macro
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picture understand what the trends are
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but more importantly have a very good
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sense about the quality of the asset the
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quality of the company that they're
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buying both from a financial perspective
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but also from the quality of a
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management team perspective and I think
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those are actually very important things
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that uh are as important as things like
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accounting diligence as legal diligence
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for example are as important as that
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that that a private reform should look
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for H and uh and also one issue that
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comes up I think for private equity in
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in any Market is finding the right
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people to to run things and in India it
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seems like that's especially an issue um
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is that is that is that issue likely to
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to get worse or do you think that that
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would get
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better I think it's going to get worse
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before it gets better I think what's
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happening is that over the course of the
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last couple of years especially there's
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a lot of money that's come to India
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there a lot of funds that are sh setting
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up shop in India I don't think that's
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going to come down I think we're going
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to see many more funds that have not yet
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had an office or set up an office in
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India that are looking to set up a
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presence over over there and so I think
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there's going to be a lot more uh
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there's going to be a lot more
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difficulty in terms of getting Talent
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especially one that understands what the
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private Equity landscape is like in
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India and how to De how to do deals over
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there uh so my sense is it's probably
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going to get worse before it gets better
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what do you think it would take to make
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it
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better I I'm not sure that there is a
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fix so to speak I think uh there are a
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lot of people who are moving from other
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parts of the world to India people who
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have experienc in terms of doing private
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Equity deals whether it's in New York or
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London or Hong Kong and so those people
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have the private Equity experience I
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think the challenge is those same people
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now need to come to India and develop
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the relationships that are necessary to
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make private Equity deals happen that I
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think will take time so my sense is I'm
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not entirely sure there's much of a a
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quick fix uh I think we're going to have
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to wait this one out for the next year
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or so and and aside from the the the
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larger market shocks that have been
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taking up all the headlines what kinds
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of Trends do you see uh taking place in
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private equity in
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general well one of the things that um
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that the private Equity Equity industry
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is concerned about apart from valuations
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has really been the regulatory framework
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within India and so far the private
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Equity industry has been an unregulated
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industry for the most
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part I think the government has started
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making noises about potentially
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controlling uh flows into India I'm not
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entirely sure where that'll go but
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that's certainly one concern the second
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concern really is the access to domestic
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debt markets uh uh in India it's very
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difficult to access domestic debt to do
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buyouts for example and so what a lot of
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private Equity Funds do is to set up
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offshore vehicles to do that I think I
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think the debt Market has to be
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developed a lot more for private Equity
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Funds to access that uh I don't know
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when that'll happen uh I think it's a
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matter of time it's a question of when
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not if uh but I would say those are the
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two two issues that private Equity firms
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need to need to think about and and
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looking a little bit ahead what sort of
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opportunities do you see uh coming up on
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the
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horizon I think the opportunities are
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actually uh very large in India
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and I say this because I think the
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opportunities exist in almost every
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sector uh we just heard a panel on
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infrastructure that talked about the
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need for a trillion dollars over the
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course of the next 10 years so I think
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in terms of opportunity there's clearly
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a lot of lot that exists whether you're
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talking about infrastructure you're
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talking about real estate there's a lot
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of buildout that needs to needs to
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happen in India whether you're talking
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about uh services companies or
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manufacturing companies I think the need
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for Capital exists
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so I'm I'm actually not not at all
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concerned about the opportunity that
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might that that might exist in India I
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think what the private Equity firms have
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to come in and show to the Indian
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companies is the value that they will
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bring and the value that they bring is
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not just Capital it has to be far more
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than that it has to be expertise it has
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to be the ability to increase or improve
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governance practices and so on and in my
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mind those are the things that will
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really differentiate private Equity
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firms one from another I don't really
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think there's an issue of opportunity at
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all thanks very much for joining us
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thank
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