2024-11-01 19:11:00
RBI data also showed that aggregate investment income outflows, Foreign Entities’ June Quarter Home Payout Zooms in 5 Years Total investment income outflows have almost doubled to $21.6 b from $11 b in April-June of 2019 of which the above-mentioned category is a subset, has almost doubled for overseas entities — to about $21.6 billion in the April-June quarter, from $11 billion in the same period five years ago.
Although the Reserve Bank of India (RBI) data does not give the source of dividend and profits, a sizable portion of private equity exits comprising dividend and profits get reflected in the investment income. Capital gains made from enhanced valuations are part of the capital outflows — not income outflows.
Private equity exits in the first half of 2024 reached a six-year high, according to a report by US-based consultancy Bain & Co.
Exit Deal Values Up 40% YoY
Exit deal values grew by 40% year-on-year, from $9.5 billion in the first half of calendar 2023 to $13.3 billion in the first half of 2024.“PE firms made good profits over the last couple of years as surging stock markets gave them good valuations for their investments in listed firms, giving them an opportunity to give good returns to the investors,” said Kuntal Sur, partner-risk consulting and leader-financial services and treasury risk management, PwC India. “Besides, for many investors, there have been many reinvestment opportunities in their home countries as interest rates were high.” Profits and dividends taken out of investments made in India by multinational companies are also reflected in the investment income.“There are two factors. One is to add to overall revenue at a time when profits are volatile due to a slowdown” said Madan Sabnavis, chief economist, Bank of Baroda. “Second, there is less need felt for reinvestment given excess capacity in some sectors of manufacturing.” Pressure on current account From the balance of payments perspective, investment income is a part of “invisibles” in the current account.
Invisibles essentially comprise income from various services, remittances by the diaspora, repatriations by foreigners to their families back home and income from various investments in debt, equity and fixed income instruments. To be sure, an unbridled surge in such outflows could add to the pressure on the current account and be detrimental to the external sector indicators. But economists say that it is still a small part of the current account outflows.
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**Interview with Anjali Verma, Private Equity Analyst at Global Ventures**
**Editor:** Thank you for joining us today, Anjali. The recent report from Bain & Co. highlights a significant uptick in private equity exits in India, reaching a six-year high. What does this mean for the Indian financial markets?
**Anjali Verma:** Thank you for having me. The increase in private equity exits is a strong signal that the Indian financial markets are becoming increasingly attractive to investors. With exit deal values rising by 40% year-on-year, from $9.5 billion to $13.3 billion, it’s clear that firms are capitalizing on favorable valuations, particularly in sectors like BFSI and healthcare, which are witnessing robust growth.
**Editor:** You mentioned that a sizable portion of this increase reflects dividend and profit repatriation. Can you elaborate on how this is impacting the overall investment landscape in India?
**Anjali Verma:** Absolutely. The repatriation of dividend income, which totalled $12.2 billion in the April-June quarter alone, demonstrates strong earnings prospects for Indian financial assets. This amount has more than doubled over the last five years, highlighting the profitability of investments and the confidence that foreign investors have in the Indian market. Such inflows contribute to the overall health of the economy and reinforce India’s position as a key player in the global investment landscape.
**Editor:** The RBI data indicates that total investment income outflows have surged as well. How should we interpret this data?
**Anjali Verma:** While the increase in total investment income outflows to $21.6 billion may seem concerning at first glance, it’s essential to understand that this includes both capital gains and dividend income. The surge largely reflects successful exits by private equity firms, which, while resulting in outflows, also indicates that these firms are achieving substantial returns on their investments, thus validating the potential of the Indian market.
**Editor:** With these robust earnings and exit numbers, what does this mean for future investments in the Indian private equity space?
**Anjali Verma:** It paints a picture of cautious optimism. The trend indicates that private equity firms will likely continue to explore opportunities in India, particularly in sectors poised for growth. However, it also means investors need to remain vigilant and adapt to market changes. As long as the economic conditions remain favorable, the private equity landscape in India is set to thrive.
**Editor:** Thank you, Anjali, for your insights. It’s certainly an exciting time for the Indian private equity sector, and we look forward to seeing how these trends develop in the future.
**Anjali Verma:** Thank you, I enjoyed our discussion!
