Yatin Shah, Co-Founder of 360 ONE, says that attractive valuations in the PE space, as well as the challenge faced by large-cap funds in outperforming benchmarks, are some of the reasons why investors are increasingly investing in the PE and alternatives segment. The shift to US investments is also primarily driven by the belief in continued innovation in the US, during Fortune India's esteemed annual private wealth roundtable.
We seem to be in a Goldilocks moment with GDP growth on a high, inflation cooling off and India Inc.’s revenue and profit growth robust as ever. But can global macro spoil the party?
Yatin Shah: Sentiments are high due to India’s robust domestic scenario, bolstered by savings which reduce reliance on foreign institutional investors (FIIs). Expectations are set for considerable earnings growth in the next few years, amidst a favourable macroeconomic environment. The reforms implemented over the past decade have prepared a solid platform, enabling companies to improve their earnings and stock market performance. Despite the ongoing volatility in global geopolitics, the Indian currency has maintained its stability amid negative FII flows in the last two years. Some sectors might seem overvalued in the markets, but overall, the valuation landscape is slightly stretched. With elections scheduled in 2024 in around 30 to 40 countries, including the U.S., India, and the U.K., market volatility is a given. Though, the long-term outlook for India remains quite strong.
Yatin, when do you anticipate private capital expenditure to kick in?
We’re observing initial signs of growth. The goal of current policies is to boost manufacturing and reduce reliance on key imports such as electronic components, which reached nearly $8 billion this year. The government is actively encouraging private sector investment in every industry. So, it’s likely just a matter of a few quarters before we see significant changes. FDI is already flowing into various sectors, including electronics, automobiles, chemicals, and pharmaceuticals. It’s a broad-based trend. I wouldn’t worry too much about this, as some indicators often lag before the actual figures are evident on the ground.
Yatin, are you bullish about investing in private markets as you had raised a fund to tap into that space?
The pre-listing market is currently more exciting than ever. A major shift has occurred due to the change in the liquidity scenario, particularly the tapering flow of capital from U.S. venture capital funds and growth capital into India’s technology sector, encompassing late-stage and early stage start-ups. This shift is partly because these funds had previously over-allocated resources in this asset class. Presently, it’s primarily domestic capital that’s playing a significant role. Consequently, valuations have become extremely attractive. The dynamics of too much money chasing too few good assets has altered. Further, with fixed income now taxed at a marginal rate, clients are diversifying their portfolios beyond traditional equity investments. This shift includes an increased focus on alternative investment options, such as private equity. As a result, there’s been a notable influx of domestic high-net-worth individual (HNI) capital into private equity funds, making this sector attractive for investment.
Yatin, are you recommending that clients invest through funds or directly?
There are three main investment strategies: (1) Listed developer stocks — investing in the stocks of listed real estate developers offers shareholders a portion of the profits from their projects. Buyers now prefer reputable, branded developers known for reliable project delivery. (2) Real Estate Funds (AIF-II) — This approach involves transforming a physical asset into a financial instrument, enabling broader participation and offering tax benefits. Developers provide access to their projects, and investors earn an internal rate of return (IRR) and potentially share in the profits of the development management company. (3) REITs and InVITs — for investors looking to avoid the volatility associated with equity investments, alternatives like Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InVITs) offer a blend of recurring income (through dividends and interest) and capital gains potential.
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