The State of Indian Private Equity: An Interview with Srinivas Chidambaram of Jacob Ballas Capital

Srinivas Chidambaram is the Managing Director and Chief Executive Officer of Jacob Ballas Capital India, an India-focused growth capital private equity firm with over US$600 million in assets under management. Srinivas Chidambaram reflects on the maturation of private equity in India and shares his thoughts on how the country’s much-anticipated general elections will influence the industry.

You have almost two decades of private equity experience in Asia. How did you first become involved in the asset class?

My basic education and grounding in the world of private equity took place in the mid-90s when I worked with HSBC’s private equity group in India and Hong Kong. Back then, HSBC sponsored one of the first private equity funds in India. Prior to that, I worked in financial services with an Indian conglomerate, and along the way I spent a few years at an IT services company. In 2005, I joined Jacob Ballas, a classic growth private equity investor that has raised three funds since 2000.

Emerging markets private equity has come a long way since you entered the industry in the 1990s. How has Indian private equity fundamentally changed in your tenure?

In India, we have seen a lot of growth, but we have also hit a few speed bumps along the way, particularly in the last three or four years. Since the 1990s, two major industry developments stand out:

  • Formation of an ecosystem: Private equity and venture capital have become a mainstream form of financing. As a result, a whole ecosystem has been built in India that did not exist 20 years ago. Even as late as ten or 12 years ago, corporate leaders and business families had not completely embraced the idea of private equity and venture capital. By now, many entrepreneurs, families and management teams have experienced the benefits of private equity investment. Today, everyone understands what it means to share wealth with the people who run your business.
  • Industry maturation: As observed in other markets, countries, companies and entrepreneurs need to go through rites of passage: in the early days there are difficulties, in the middle period everything looks good and capital is easily raised, and then you come to the third phase where you begin to realize how to really make capital work for you. As corporates and entrepreneurs, as well as private equity firms, have come through that learning process, the industry has matured.

According to EMPEA’s most recent statistics, private equity fundraising in India has slowed significantly in the last year. What do you attribute this to, and what challenges is the industry currently facing?

We have had a difficult last five years. In the period from 2009 to 2014 we experienced two big dips in terms of GDP trend lines, and that speaks to every sector. We have also had a couple of good years in between, which proved to be false dawns.

One factor affecting the industry is that capital markets as a means of raising capital have not been consistent. Specifically, the IPO market in India has experienced several ups and downs. There have been windows during which it was very buoyant and a lot of capital was raised, but similarly, there have been many instances where the IPO market has slowed or shut. One positive from this volatility is that when capital markets have been down, private equity has stepped in as long-term, smart money, filling the breach and helping entrepreneurs build businesses.

Overall, however, India’s financial rollercoaster has forced a return to the basics. If you take a step back and examine corporate India, it currently faces two challenges:

  • Lack of good governance: Over the last five years, a lack of good governance has undermined confidence in India’s business environment. Whomever you speak to, there is a uniform sense of disappointment across the industry. As a result, corporates and industry leaders have shied away from investing in business expansion.
  • Overleveraging: India is in need of strong infrastructure to support its business environment. Currently, however, there is little equity available for such projects, and corporate India, particularly the infrastructure sector, is already overleveraged. With hundreds of companies burdened by debt, significant policy reform is required to attract investment in sorely needed infrastructure assets.

To address these challenges, India requires a major shift in its macroeconomic policy and a renewed commitment to good governance. That can only come about with new leadership, a new government and a stable set of policies. In India we often joke that India grows at night when the politicians sleep. This used to be true historically, but now I think everyone has gone to sleep. India needs to buck this trend and transform its attitude of defeatism.

India’s general elections are underway and set to be completed in May. How will the election results influence the country’s private equity landscape?

By and large, people in the industry and in the financial world are apolitical. They want a stable government to do business with and to lead policy action. India is a democratic country with a federal structure, so if the right policies are in place, the implementation of these policies is down to each one of our states—good governance cannot be compromised.

Assuming a stable government forms once the elections are over, I see two trends for financial investors and the industry in general:

  • Getting back to business: A lot of the private-public dialogue over the last two years has been about how to fix infrastructure problems, including power, roads and ports, as well as how to solve burning legislative issues, including income tax laws, the goods and services tax and environmental laws. Clearing this policy logjam will allow everyone to focus on getting back to business. Once the elections are out of the reckoning and all speculation is gone, India’s entrepreneurs can get back to doing what they do best, which is build and operate good businesses.
  • Renewed focus on growth: This is a country with a mix of a lot of wealthy people, a huge middle class and millions of people who are underprivileged and below the poverty line. India needs more than four or five percent GDP growth to carry everyone along. There is no magic formula, but the propulsion of growth and a renewed focus on building India is hopefully what the elections will finally accomplish.

What advice or lessons learned would you pass along to first time fund managers in India?

I have mainly a positive message: there are wonderful entrepreneurs and management teams in this country. The trick is finding them and partnering with them in a way that is disciplined, which means paying a lot of attention to detail when executing a business plan. If you raise a focus on execution you cannot go wrong. We find our sources of underperformance whenever someone has ignored those principles.