Indian Private Equity Benefitting from Online Boom


July 14, 2015


India’s economy is doing well, with the economy expected to grow the fastest this year. The new confidence boost in the country has also breathed in new life into the private equity sector. One of the biggest sectors driving the private equity rekindling is the e-commerce sector and the online boom in general.


Increase in Investments


We previously reported on the booming private equity figures in India. The country’s investments in private equity in the first six months already mount up to $9.5 billion, according to data by Bain & Company. This could mean the country’s private equity volume breaks the previous record from 2007.


The current online technology craze is taking place in China, but India could well be the next thing. Michael Dempsey, an analyst for CB Insights, told Economic Times, “With more than a billion people, why wouldn’t it be one of the next major tech hubs? That’s what investors are thinking.”


Following the Online Boom


The big winners are online platforms. Naturally, e-commerce companies such as China’s Alibaba have helped boost interest towards these platforms and Indian e-commerce sites are being targeted by private equity.


One of the big deals of the year was by an affiliate of the Chinese giant. Ant Financial, invested into the owner of mobile wallet Paytm, One97 Communications. The deal was worth $635 million.


Furthermore, taxi-hailing apps in India are also attracting private equity investment, just as their Chinese counterparts. Ola Cabs managed to receive $402 million from private equity. Investors included the likes of SoftBank from Japan and Tiger Global from the US.


Tiger Global has been especially keen to invest in the country. It also made a $500 million investment in India’s leading e-commerce platform, Flipkart.


Is There a Bubble On the Horizon?


But some analysts are also concerned about the current online boom. According to a recent article by Una Galani published in Breaking Views, the bubble could well be on the verge to happen.


“In the last boom it was expensive, capital intensive, infrastructure-related investments which ended up in every major private equity portfolio,” the article stated. It highlighted data by McKinsey, which shows these type of investments in the last boom accounted for 43% of the $77 billion invested at the time in Indian private equity markets.


Global Technology Investment Boom


The private equity craze for online platforms and technologies isn’t only happening in India. China, the economic powerhouse right next door to India, has also seen investor focus shift towards these – a shift that is causing quite a bit of problems on the stock market.


Economic Times article argued yesterday that Chinese stock market trouble might well lower private equity appetite towards online platforms in India as well. But not all analysts agree. The article quoted Kai-Fu Lee, chief executive of the start-up incubator Innovation Works, who said big investment won’t be deterred, as “top funds still have plenty of venture capital”.


It will be interesting to see how India’s private equity will do this year. The focus will be on analysing whether firms and funds will start slowing down their investments in the booming online sector.

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