Returns to slow down in next 6 months: PE players

Indian private equity (PE) managers believe that returns from new PE investments may witness a slowdown over the next 6 months.

PE managers opine that gone are the days of high returns of 30-40% on PE investments, as valuations have moved up considerably and the underlying conditions are tougher.

A survey of top 40 active PE players by Deloitte Corporate Finance Services ? “The India Private Equity Confidence Survey” – showed that around 52% of PE managers felt that over the next six months returns achieved from PE deals will dip. PE managers feel that returns may moderate to around 20-25% going forward.

The survey showed that while 52% of the respondents felt that returns will dip, 42% of the respondents felt that returns will remain the same, and only 6% of PE managers felt that returns will increase.

Sandeep Gill, MD, Deloitte, said, ?There is no more low?hanging fruit. India has been discovered. The days when we would get 30-40% return are over. Valuations have moved up and the underlying conditions are getting tough. Going forward, we will see moderate returns of around 20-25%, over the next 6 months.?

PE managers also feel that the changes in the regulatory environment like the recent changes in convertible preference shares and the curbs that continue to be imposed by the Reserve Bank of India (RBI) on funding has reduced the flexibility in deal making, due to the impact on deal structures. 62% of PE managers felt that this regulatory change has affected the PE market.

Gill said, ?The regulatory changes like the curb on the issuance of convertible preference shares has reduced the structuring options open to investors. If the structuring options don?t exist then managers are effectively penalised.