Private Equity Gets Its Toe in India While IPOs Straggle

Sykes & Ray Equities (I) Ltd.

BSE CLG No.: 189, SEBI Reg No.: INZ000199833,

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Disclaimer: This post is for educational purposes only. Markets are subject to risk, so please consult your financial advisor before making any investment decisions

Introduction: The IPO Slump—Why Is It Happening?

The Indian capital market was a battlefield the last two years for companies raising IPOs. But now, the party popped. The IPO pipeline dried up because of economic disruption, interest rates, world geopolitics tensions, and investor jitters. But one investor stepped into the gap—Private Equity (PE).

While public issues take a back seat, private equity players are leading India's growth story in directions not expected. Why is that? What does this mean for the long run, and how can investors capitalize on the best from the transition?

The Shift: Why Private Equity is Booming

1. Volatility in Public Markets

Stock markets are capricious, and firms would not be prepared to take risks on low valuation by sentiment swings. With inflation on a rising trend, with crude oil prices on the loose, and with financial uncertainty wrapping the globe, most firms would appreciate the surety of private capital.

2. Stringent Regulatory Requirements

IPOs come with strict compliance, transparency, and scrutiny. SEBI’s evolving regulatory framework demands increased disclosures, governance standards, and minimum public shareholding requirements. Many startups and mid-sized firms prefer the flexibility of private capital without public-market obligations.

3. Long-term Growth Potential

PE firms invest long-term, thus enabling the companies to concentrate on long-term expansion and not near-term stock prices. Publicly traded companies generally face quarterly pressure to report, while PE-backed companies can invest in growth strategies, R&D, and strategic expansion without worrying about near-term profitability.

4. Increased Liquidity for Businesses

In contrast to a single tranches of funds brought in in IPOs, PE investments are customarily made by way of various tranches to enable companies to receive constant streams of cash towards growth. Where growth on a large scale is an ongoing necessity, as in the areas of technology, e-commerce, and financial sectors, private equity ensures a consistent stream of capital.

5. Sector-Specific Growth

Private equity is taking over high-growth industries such as fintech, edtech, SaaS, alternative energy, and consumer goods. All these industries involve massive capital expenditure and long gestation periods before they are profitable and hence are the best bet for PE investment.

6. Growing Domestic PE Participation

Foreigners used to dominate Indian private equity. Indian groups and domestic investment companies are now starting PE funds, making the market more deep. Players such as JPMorgan Chase-backed Tata Capital, ICICI Venture, and Reliance-backed companies are also making big PE deals with greater frequency.

With over 34 years of experience serving our clients, we offer personalised 1-on-1 consultations to help you understand market trends and invest in fundamentally strong stocks. Contact us at 022-61937300 or visit www.sre.co.in for more details. Invest smart with SRE.

Real-World Example: PE in Action

• Consider the example of Byju's, India's largest ed-tech behemoth. Rather than go public via an IPO over the past couple of years, the firm has garnered billions of dollars in funding from foreign PE giants such as Blackstone and Tiger Global. Why? To make business, eliminate competition, and own the market—without public shareholders at their necks.
• Similarly, Lenskart, an eyewear firm, postponed its IPO plans and raised crores of funds from private equity players, thereby growing steadily despite market tension. The approach has enabled the firm to build global markets, buy small firms, and invest in disruptive technology.
• Even Swiggy, the best-performing food ordering platform, has used private equity to finance its hyperlocal push, ramp up its logistics staff network, and enter grocery delivery territory—a move it may have found totally impossible to make under the scrutiny of the public markets.

How do investors profit?

Riding this wave, if you are an investor willing to do so, involves the following:

? Invest in Alternative Investment Funds (AIFs): Most PE funds provide HNIs (High-Net-Worth Individuals) with an opportunity to invest in high-growth companies and start-ups before they list in the public markets.

? Invest in Pre-IPO Funds: Certain funds invest in those companies that are about to list an IPO, providing better entry points before listing in the public markets.

? Follow the Money: See where large PE players such as Sequoia, KKR, Blackstone, or SoftBank are investing. These players prefer to choose industry players in the making.

? Diversify Your Portfolio: Private equity is not everything. Offset PE investment with traditional assets to neutralize risk vs. reward. Combine some direct equity, mutual funds, real estate, and PE-backed companies into your portfolio.

? Pursue Secondary PE Opportunities: Sometimes current PE investors recover their stakes by selling stocks to other private equity participants. The secondary transactions are more appealing to those who would rather invest in high-growth companies.

? Venture Debt Search: Alongside equity, venture debt is also becoming popular among Indian startups. Investors looking to earn a fixed return with minimal risk in contrast to equity investment can look towards this sector.

With over 34 years of experience serving our clients, we offer personalised 1-on-1 consultations to help you understand market trends and invest in fundamentally strong stocks. Contact us at 022-61937300 or visit www.sre.co.in for more details. Invest smart with SRE.

Conclusion:

As the waiting public investors look forward to the next batch of IPOs, the PE firms are getting ready for acquisitions and making their presence felt in the next-generation unicorns. Private equity is becoming the driver of choice for the company during an IPO downturn.

The coming years will witness greater consolidation within the sector wherein capitalized PE-backed players buy out small rivals, fast-track digitalization, and grow internationally. Policy adjustments in India will also continue to impact the space in PE to make it investable for retail investors.

To the smart money clan, it also means planning in the sense of restructuring plans and boarding before companies go public. The question is—are you ready to take the ride of private equity?

As the waiting public investors look forward to the next batch of IPOs, the PE firms are getting ready for acquisitions and making their presence felt in the next-generation unicorns. Private equity is becoming the driver of choice for the company during an IPO downturn.

The coming years will witness greater consolidation within the sector wherein capitalized PE-backed players buy out small rivals, fast-track digitalization, and grow internationally. Policy adjustments in India will also continue to impact the space in PE to make it investable for retail investors.

To the smart money clan, it also means planning in the sense of restructuring plans and boarding before companies go public. The question is—are you ready to take the ride of private equity?

Be at the leading edge of India's vibrant investing landscape. Stay with us and our experts and get tips on private equity investment and market trends. Let us use the market highs and lows to turn around investment gains! Stay ahead. Stay invested. Stay informed.

With over 34 years of experience serving our clients, we offer personalised 1-on-1 consultations to help you understand market trends and invest in fundamentally strong stocks. Contact us at 022-61937300 or visit www.sre.co.in for more details. Invest smart with SRE.