Post COVID Situation of Private Equity Funds in India

Post COVID Situation of Private Equity Funds in India

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What will be the effect of the COVID-19 outbreak on the private equity sector? Honestly, nobody knows. COVID-19 pandemic is an unprecedented health crisis in its global sweep and impact. On the economic side, it raises many unknowns about how dreadful it can be if lockdown continues for an extended time. If we go back and look at the impact of previous economic crises such as the 2008-09 global financial crises, we can say that equity funds in India won’t sit idle for too long.

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Investment Deal making fell off sharply during the financial crisis of 2008-09 and it is expected to repeat the same during the current situation as well.

Competition for attractive deals will likely decline, to private equity’s benefits. With the public markets discouraged and potential corporate buyers holding onto their investments, private equity funds are wellpositioned to be the buyer for any deal that does come up for sale.

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Fund Raising For investors who have survived the 2008-09 economic crises, the current crisis is unlikely to shake their confidence. The drop in fund-raising this time around might be less harsh than in 2008–09 when the global total dropped more than 50%. At the same time, various structural factors could restrict the amount of new capital flowing into private equity funds in India for some time.

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Returns Expect returns to take a hit for some time as funds mark down their portfolios in tandem with the drop in public valuations. However, the impact will be unknown for several quarters, as market-to-market moves lag public equities and PE funds report quarterly.

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It will be very early to draw any conclusions about the long-term impacts of the Covid-19 crisis, but the funds most prepared to endure this crisis will benefit more. Given the darkness surrounding the Covid-19 crisis, it is impossible to assess the longer-term impact on private equity industry performance. It will depend on the duration of the lockdown and the trend of the subsequent recovery. High-valuation deals done before the slowdown may ultimately suffer as company performance comes under pressure.

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