‘Investors Want to Park Money With Pros Having Good Exit Track Record ’

Outlook for Indian PE market is positive, says outgoing ChrysCap CEO Dhawan

A day after announcing that he would exit his post as the founder CEO at ChrysCapital, one of India's most successful private equity funds, Ashish Dhawan spoke to ET's Paramita Chatterjee on the outlook for the private equity (PE) market in the country and why he is concerned about there not being enough exits for investors in the sector. Excerpts...
What is your outlook on the Indian PE market that is now out of infancy?
There is immense opportunity for investors going forward as there are lots of high growth companies that require capital as they gear up for expansions. The outlook for the sector is extremely positive over the next 5-10 years with all projections indicating a healthy growth rate for India. Besides, the industry, too, has matured over the past few years. Supply of capital has gone up exponentially with several global firms entering the market around the same time. In fact, there was an over-supply of capital that led to some bit of a mismatch in terms of supply and demand. But that gap is now easing as the pace at which funds are coming in is slowing while demand for capital is accelerating.
Before the financial slowdown, PE and VC firms invested nearly $43 billion in the country. Will that kind of growth return?
There was an abnormal growth during the years before the slowdown, especially in 2007 and early 2008, when valuations had skyrocketed and touched unrealistic figures. The market then was overheated and thus a correction was slated to take place. The growth that the industry recorded last year is more realistic and sustainable.
Fund-raising continues to be a challenge in the PE sector despite a pick up in deal flow. While global limited partners (LPs) are cautious about parking money, the domestic pool of funds is not enough for the industry. How do you see this trend playing out?
There are two points to it. One, it is true that investors are cautious towards deploying fresh capital and this is especially true for first timers trying to raise new funds. And two, India has not seen too many exits that prove to be a big challenge for the sector. This is primarily the reason as to why investors want to park money with professionals, who have a good track record of successful exits.
PE firms are expanding their radar and eyeing listed firms. Is it because investments in listed entities offer more transparency and easier exit options?
That's not the only reason. India has a large pool of listed companies whose stocks are trading at attractive prices on the bourses. Privately-held firms too are attractive.
The PE industry has witnessed a lot of top level exits in the past few months. Last month, the founding members of Sequoia Capital quit. Do you think this will turn into a growing trend?
Each circumstance is different. The founding members of Sequoia Capital have stepped down but are still in the business. My reasons are different. This churn in top level is more to do with the desire of taking up entrepreneurship.
Could you take us through your plans on how you want to pursue your desire to work on social issues in the education sector?
Education is a critical issue in the country and we do need to fix it. No country has ever benefited without educated workforce. Our country has huge scope in the sector and the number of educated workforce in our country is still low. I have always been passionate about the sector and wanted to focus on nonprofit ventures in the primary and secondary level education. Initially, I may fund companies in my personal capacity. Later, I may do something on my own and get some money from some foundations. But nothing is happening in the next few years.