Debt ridden Indian companies are busy scouting buyers for selling off their assets and lightening their debt burden. Sanjay Nayar CEO and Country Head of KKR India says that sentiment is turning positive among private equity players and the deal pipeline has improved.
However, he feels that real signs of economic revival are still some time away. Private equity firm KKR India has invested nearly USD 1 billion in India. Nayar adds that one should see deal closures taking place and pent-up consumption is picking up.
Sharing views on team Modi’s performance, he says that the government is sending right signals to improve business environment. While it is too early to judge the government, the focus from hereon will be on how it tackles structural issues, he adds.
Below is the transcript of Sanjay Nayar's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Sonia: We were reading that the inbound deal activity has picked up quite a bit, so in the month of July there have been some 56 deals worth USD 6.5 billion which is a huge jump compared to same time last year. In your mind with the new government on board, do you think that the sentiment has picked up enough for deal activity to pickup so much?
A: The sentiment is very positive; there is no doubt about that. Sentiment is positive even across overseas investors who give money to private equity firms. Firms are lot more constructive looking at deals, so there are no doubts that the deal pipeline has picked up. The deal activity in terms of closed deals - still the jury is out but there is a lot of activity in terms of ideas and meetings. I would say that sentiment is -- at least one quarter of the input to make this get reactivated but I would say the real economy and the revival of that and see real signs of that – that is still some distance away.
Therefore, what happens in a market like this, obviously the expectations go up a lot in terms of valuations and the private equity industry having come out of the ’05-06 vintage is a lot more disciplined today, all of us are. Nobody is killing each other to overpay which is good in a way, so there is a constructive tension between expected valuations because India is running away versus private equity which is a lot more consolidated, lot more disciplined. Private equities are going to be able to provide very valuable long-term high quality capital to Indian companies for growth. So, that activity is high, the tension is good, so we will hopefully see some deal closures.
Latha: Coming to the statement that you made that the actual economic activity has not picked up on the ground. You have your hands in Cafe Coffee Day, in Magma Fincorp and whole host of companies. Hasn’t consumption picked up?
A: In terms of pent-up consumption yes, there is a bit of pick up from pent-up consumption whether it’s in rural India or in urban India. Without going into specifics of companies that statement is valid. Is it terrifically high year on year. I do not think so. What I meant by real economy was that you got to get India back to the potential in terms of where it should be in terms of real growth. My real issue is that when this government is settled down, it’s too early to judge it; when it settles down, how does it get the structural issues out of the way such that you get the potential growth back to 6 percent arena rather than worrying about quarter on quarter 5.5-5.6.
The potential growth hasn’t got reduced over the years, structural issues and we know the issues, so there is no point going through it again and again. How they tackle that is going to be the key and that’s the only way you get to higher potential growth without stoking inflation - that’s the tricky balance. When we see that and you get a roadmap of that from the government and this government is so hard working and has fantastic work ethics, I am sure that they will deliver 80 percent once they have a map. When you see that that’s when some averse will get much more confident that you will see real growth coming back. Right now we have spent so much time worrying quarter on quarter, month on month. We have to see the structural shift in the potential growth.
Latha: This 5.7 percent gross domestic product (GDP) that we have got, you would say is only because of extremely depressed levels and therefore you are not seeing a sustainable 6 percent anytime soon?
A: Difficult. Without stoking inflation it is difficult.
Latha: We will have to linger here for another eight quarters?
A: You could linger here for at least four quarters. It’s better than 4.5 percent, so don’t misunderstand me. Your question was the real pick up, will come when you take the potential up again and then you start having lower investment capital output ratio and then again you get back on the more virtuous cycle – that’s a bit of a difficultly right now.
Sonia: When we speak to a lot of private equity players that we have been speaking to in the last many years, they say that India continues to be ranked very low when it comes to the ease of doing business. In that sense has the government done anything in the first 100 days to fix that problem?
A: The signals are absolutely, they are trying very hard. They sit across the table, they are giving a very clear message and they are open for business. I have had a couple of meetings where you can table issues for the industry, not for a company and you get a response back. I think they are very receptive, they are listening and one cannot expect magic in 100 days. I would say that if one has this kind of an attitude of listening to the industry and collating the issues and tackle them. I think that’s very positive and that signal is going all the way back overseas. The sentiment is much better.
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