Indian vs. Chinese PE

KPMG recently published a new report on Indian PE- it is well worth a look.

The news is mixed. Clearly there is still a poor IPO market in India, quite apart from the clouds yet to clear globally; but the report also touches on some differences between the Indian and Chinese economies, and it is refreshing to see an analysis that draws attention to India’s relatively little noticed strengths. We will be talking about this in the coming year in more depth in the PE Club, with some great speakers joining us, but a couple of points are worth noting now.

With a better deal environment, India is seen as giving superior intellectual property protection to its neighbour, a major plus for tech investors (looking at domestic or foreign IP). Meanwhile investor rules are more predictable and capital markets also more efficient. The time lags needed in this unpredictable environment between fund closure and full investment mean it is often worth investing through two full business cycles. Taking minority stakes also seems wise (to keep managers incentivised). And as in any emerging market of course, fraud risk assessment is a big priority.

Yet although Chinese IPOs are higher, this is often a symptom of local banks profiting from investors’ ignorance (among other phenomena). In fact these higher IPOs are often the main reason given to justify China as a superior PE location, but India also gives more exit possibilities- so investors don’t have to aim for the IPO.