The Evolution of Private Equity in India

Abstract

Private equity helps to reallocate resources and talent to more productive uses and is especially important in developing countries, where financial markets are often underdeveloped and inefficient. Starting in the late 1990s, private equity investment in India grew rapidly and offered high rates of return to investors through the mid-2000s. These high returns drew more capital into the nascent industry and valuations rose. As the economy faced challenges due to the 2008 global economic slowdown and exits remained difficult, returns fell. Over the last decade the industry has matured and begun growing again. As the industry has evolved, the role of private equity investors in the economy has changed. Once engines of financing and efficient allocation of resources across the economy, private equity firms are increasingly focused on operational efficiency and firm productivity. Their adaptation mirrors and supports the increasing complexity and needs of the Indian economy.