As macroeconomic headwinds threaten to derail the deal-making momentum in the short-to-medium term in India, there could be a correction in company valuations going forward.
“The global economy is under pressure from geopolitics and macroeconomic policies-led inflation and consequent corrective actions in the form of increasing interest rates,” Satish Chander, partner at True North, one of the oldest private equity (PE) firms in India, told DealStreetAsia in an interview.
“Financial markets have reacted to these developments and there have been corrections across markets… valuations have [become] and will [be] moderate. But they are not the only reason deals get done,” he added.
After limping out of the COVID19 crisis, PE and venture capital (VC) deal momentum witnessed a significant uptick last year on the back of better-than-expected Indian economic revival, successful vaccination drives and alignment of global macro factors at that point in time.
However, investment sentiments changed drastically over the past 1-2 months on account of the Ukraine-Russia war, COVID19-induced lockdown in China, and above all, the increase in US interest rates.
According to data available with Indian Venture and Alternate Capital Association (IVCA) and consultancy firm EY, PE and VC firms invested $77 billion in 2021, recording a 62% jump from $47.5 billion a year ago.
“We do face pressures emanating from global developments. However, I do believe that we can weather this [situation] better,” said Chander.
“There are several segments like financial services, healthcare and consumer in the country where penetration of goods and services is still sub-optimal. There are opportunities in all these sectors.”
True North is currently on the road to raising its seventh fund as it looks to ramp up investments in the digital sector alongside traditional firms.
While Chander declined to disclose the target size for this particular fund, DealStreetAsia had earlier reported about the development, pegging the corpus at over $600 million given that its immediate predecessor fund had raised a similar amount in 2019.
“We are definitely well placed to deploy adequate capital to capitalise on the opportunities in the market,” said Chander.
Edited excerpts of the interview:
