MC EXCLUSIVE Businesses that are national champions must go public: Gopal Jain, Gaja Capital

Gopal Jain, Co-founder and Managing Partner, Gaja Capital

Making a strong case in favour of more domestic participation in India’s investment landscape, Gopal Jain, Co-Founder and Managing Partner, Gaja Capital, says companies which are at the forefront of making an impact in the domains they operate in should go public. He believes capital markets are among the best options to institutionalise and democratise retail investments.

Speaking exclusively to Moneycontrol, Jain also laid out why India is becoming a hit destination for global PE investors, and how the development of a good exit option through IPOs will be a magnet to attract more foreign money. Edited excerpts:

How do you view the Indian private equity landscape at the moment?

Private equity firms, on the back of foreign GPs (general partners) and LPs (limited partners), can never punch to their weight in India because it's not somebody else's business to invest in India. Look at Japan, Germany, China and the UK — the GPs and LPs are local. India is 4 percent of the global economy and 8 percent of the global savings economy. We are a savings factory of the world. In order to make Indian private equity Indian, two things need to happen. One is connecting domestic savings to alternatives, and the second is the institutionalisation of Indian GPs. GPs have to prepare themselves, and simple “stroke of pen” reforms are needed to connect India's massive savings economy with alternatives. This can help Indian banks, insurance companies, and pension funds to invest in alternatives. Public trusteeship is the cornerstone principle of the Indian financial system. Gaja Capital is a 20-year-old company, and we structured ourselves with institutionalisation in mind.

What’s the deployment strategy on the PE front?

Having a target for deployment is an anti-thesis of our business. We just announced an investment in a leading branded eggs player, Eggoz. We are actively evaluating many opportunities, and we will consistently keep on announcing new investments and more exits.

How would you assess the financial services industry right now?

Financialisation is one of the most powerful trends in the Indian economy right now. It’s also the most visible trend, which touches the most number of Indians at the confluence of reform, digitisation, rising income levels, and rising literacy. If you look at Signzy, that's a technology provider to financial services. We have been working on an affordable housing platform. We've done a number of mid-market management buyouts in India, and that's another example of us backing a team to create high-quality, scaled-up, regulated businesses. Our interest in regulated businesses — the banks and NBFCs — is consistently there.

Outside of financials, what’s catching your interest?

Education, B2B software, SaaS, and AI. We are actively understanding, following, and evaluating the development in this space. India will play an important role in the global AI economy, though it's early days now. For instance, India is now a consumer of technology and not just an exporter. Indians have become more digitally literate than just being literate. On many fronts, we are leapfrogging.

What’s your take on valuations across sectors?

It’s perilous to talk about valuations. If high valuations are a challenge, then there is a way to overcome it. For example, look at what we've done with Weavers. It’s a management buyout, which helped create a platform, and that's a way around the valuation problem. In a management buyout, a team buys well-priced assets with the idea of converting them into leadership assets, as opposed to buying into a leadership asset right away, where the valuations go up and down. We are seeing another phase emerge of lower interest rates and some signs pointing to a better balance between growth and regulation. We should see how this will impact banking and the NBFC sector in terms of growth and valuations.

We had a very prolonged stretch of large private equity transactions happening through the capital market. Do you see this as a ‘Welcome to India’ sign for foreign capital?

For the longest time, India was seen as a country easy to invest in but difficult to exit. If you link private equity to a machine, I’d say it has started working better in the last five years, and one of the reasons it has is because exits have started happening through capital markets. India, last year, was the world's best IPO market and promises to be one this year as well. There is a clear demand from investors for well-run, differentiated, scaled businesses, and then on the supply side, private equity has developed a good reputation for growth, governance, and ESG. One and one make 11 in this case. Moreover, my bias is that high-quality assets in India should certainly explore going public. They should contribute to public markets and increase participation by retail investors and employees. National champions should go public.

What about the negative noise around the Indian equity market being made into a dump yard for PEs?

A cycle can be virtuous or vicious. A virtuous cycle is one in which all depends on the maturity and the responsibility of whoever is managing the cycle over a period of time. The market self-selects. There are many reputed and mature private equity investors in India, in whose hands the investment cycle is a virtuous cycle. You don't necessarily exit at the highest price you can extract because we run long-term businesses. By and large, most private equity investors are long term in nature, and therefore are more interested in seeing a virtuous cycle rather than a vicious one. Indian markets are increasingly sophisticated. We have very high-quality regulation. We get a premium because of our regulation.