The Reserve Bank is likely to keep interest rates on hold in the next month’s monetary policy meet, but may slash the key lending rate by a 50-75 basis points by March 2016, Morgan Stanley on Thursday (23 July) said.The investment firm believes that the RBI will leave the interest rates unchanged in its August 4 policy review meet given the acceleration in June headline CPI inflation and increase in core CPI for the third consecutive month. “We believe the RBI is likely to wait and watch how the monsoon season pans out and keep rates on hold in the August monetary policy meeting,” Morgan Stanley said. The brokerage however expects the headline CPI inflation to decelerate to 4.9 per cent by the end of next year, which in turn “should create room for the RBI to lower rates by a further 50-75 basis points by March 2016", its report said. The CPI inflation is likely to moderate due to weakening rural wages, slowdown in government spending, slower global commodity price growth and moderation in property prices, the global financial services major stated. As per official figures, retail inflation rose to an eight-month high of 5.4 per cent in June on costlier food items, fuel, housing, clothing and footwear even as prices of sugar and confectionery items eased during the month. The RBI, which tracks retail inflation as a benchmark for its monetary policy, said earlier last month that price rise was still a worry for the central bank. RBI expects inflation to rise to 6 per cent by January 2016. The central bank is scheduled to announce third bi-monthly monetary policy on August 4. On growth, Morgan Stanley said domestic demand would be the main driver of acceleration in growth, with support from external demand likely to pick up only gradually in the second half of this calender year. According to the firm, slowing rural real wage growth and tightening fiscal policy are likely to hold back rural consumption in the next 3-6 months, while urban consumption is expected to accelerate in a sustained manner with rising real incomes, a steady pickup in job growth and added support from further rate cuts. “We believe that in order to sustain growth at 7-8 per cent levels, in the medium term the government will need to focus on addressing issues related to land, labour tax, policy regime related to infrastructure and overall ease of doing business,” the report added.(PTI)
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Under pressure to do more to cut a $49 billion mountain of bad debt, India's state-owned banks are reversing years of lax recovery efforts, naming and shaming smaller borrowers and even using big TV screens at shopping malls to advertise seized assets for sale. India's bad debt pile, dominated by corporate loans, is at its highest in a decade, swollen by an economic slowdown, loose lending and, in many cases, banks' own failure to do enough to chase down rogue debtors. Now, bank executives say pressure — from a government needing to accelerate economic recovery and from a central bank that wants company owners to take more responsibility — has left little choice but to get tougher and faster. Tactics include targeting smaller borrowers with aggressive 'name and shame' campaigns, with placards and groups of bank employees protesting outside offices, for example, and putting pressure on investors or executives at larger firms. P.K. Malhotra, a deputy managing director at the State Bank of India, the country's largest bank, said his team received extra training, including in psychology, and was systematically chasing up payments, as others in the bank accelerated sales of seized assets. "The focus (is) on getting court cases expedited. Less on the paperwork and more on the fieldwork," said Malhotra. Executives say it's too early to measure overall success, but there have been some wins for India's bruised banks. Suzlon Energy this year sold its German unit, Senvion, for 1 billion euros ($1.1 billion) in cash — less than what it paid to buy the asset in a deal completed in 2011. It crystallised a huge loss after banks piled pressure on the loss-making wind-turbine maker to cut its debt. More than two dozen lenders led by SBI are looking for an investor in Electrosteel Steels Ltd, whose near-$1.4 billion bank loan is strained. Rather than 'evergreening' the loan - a process of regular review and renew - lenders are getting involved in the buyer talks, an individual with direct knowledge of the matter told Reuters. EARLY WARNINGSGross bad loans at Indian banks rose to Rs 3.1 trillion ($48.83 billion) as of end-March, or 4.6 per cent of total loans, according to central bank data. Including loans that are stressed but not yet classified as bad, total troubled loans made up 11 per cent of total lending. Banks say they are now moving faster to bring that down, stepping in at the first sign of trouble, sending out more officers to chase borrowers and putting more people on the job through specialised branches. Some are trying to speed up the sale of seized assets by advertising them on large screens at shopping malls. "These days people are getting on to the job the moment you have an early warning signal that something may happen in a company and you have thousands of crores at stake," said a senior banker at a big state-run bank. India uses crore to denote a unit of 10 million. SBI has set up branches focussed solely on recovering loans, and, to speed up cumbersome paperwork, encourages managers to snap pictures of themselves on seized assets - proof of the change of ownership. It plans to set up a web portal to showcase all the seized assets available for auction. "Companies can sometimes fall in love with their assets, but bankers can't afford to do that," said SBI's Malhotra. Union Bank of India chairman Arun Tiwari said his state-run lender has changed its system to put three separate general managers in charge of recovering different classes of loans - large, middle and small. "You have to go out in the field," he said.(Reuters)
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You can expect a slew of deals going ahead – as state-run banks seek to jettison what’s non-core to their business. And there are no “ifs” and “buts” here as North Block too wants it that way, says Raghu Mohan In the 90s – in the first blush of liberalisation – state-run banks set up arms to tap into just about every other sub-sector in financial services – for insurance, capital markets, broking, and factoring. Many of these entities just chased the fashion of the day. Some came to hold stakes in stock exchanges by virtue of them being seen as “institution builders”. That’s how the State Bank of India came to hold a tad above 10 per cent in the National Stock Exchange; IDBI Bank (from its days as a development financial institution) five per cent; and so too the now almost defunct IFCI with six per cent. The immediate trigger for the sale of non-core assets by state-run banks is the realisation that the Centre will be hard pressed to infuse funds into state-run banks – now that a distinction has been made between the “better” and worse off in this category. The estimated additional capital requirements on account of Basel-3 which kicks in from fiscal 2019 is put at Rs 5 lakh crore -- of which non-equity capital will be Rs 3, 25 lakh crore, while equity capital will be Rs 1, 75 lakh crore. In his first Budget speech of July 2014, finance minister, Arun Jaitely, put it at Rs 2, 40 lakh crore. The exact amount depends on a range of factors: credit growth, its quality, dud-loan provisioning, and the technicalities under Basel-3. In a recent report, Jefferies’ analysts Nilanjan Karfa and Anurag Mantry noted that “government capital allocation will also factor in and come with specific riders on what banks can generate through sale of non-core assets. This further accentuates the deleveraging that banks will undergo as a part of their balance sheet repositioning… We agree that not everything can or will be sold, but the need to unlock value from the non-core assets has never been higher than it is today”. The sale of non-core assets by state-run banks basically takes a leaf out of a global trend. For instance, Barclays has set up a “Bank non-core” or BNC to house such assets to eventually sell them off. Others like Citigroup, RBS and Credit Suisse have adopted a like strategy. In India, the sale of non-core business lines has been executed largely by foreign banks as their parents revisited strategy back home. Such “cherry-picking” can range from the simple: HDFC’s Rs 60-crore buyout of Gruh Finance, the housing finance arm of Gujarat Ambuja Cement, more than a decade ago, to the complex: HSBC’s move to knit RBS retail and branch licences. It can be geographical: StanChart’s buyout of ANZ Grindlays Bank’s India and West Asia operations for $1.3 billion in 2000. Or of a vertical: ABN Amro’s decision to buy BankAm’s Asian retail book for $200 million in 1999 after its merger with NationsBank. It’s a case of different folks, different strokes. If you are hard-pressed on outreach as a foreign bank, you go for an embedded local non-bank player to secure your retail ambitions. Seven years ago, HSBC picked up 73.21 per cent in IL&FS Investsmart, a retail brokerage house for $241 million, 43.85 per cent from E-Trade Mauritius, and 29.36 per cent from Infrastructure Leasing and Financial Services (IL&FS).Basel-III will now see state-run banks get onto the bandwagon now – as sellers to raise capital.
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Under pressure to do more to cut a $49 billion mountain of bad debt, India's state-owned banks are reversing years of lax recovery efforts, naming and shaming smaller borrowers and even using big TV screens at shopping malls to advertise seized assets for sale. India's bad debt pile, dominated by corporate loans, is at its highest in a decade, swollen by an economic slowdown, loose lending and, in many cases, banks' own failure to do enough to chase down rogue debtors. Now, bank executives say pressure - from a government needing to accelerate economic recovery and from a central bank that wants company owners to take more responsibility - has left little choice but to get tougher and faster. Tactics include targeting smaller borrowers with aggressive 'name and shame' campaigns, with placards and groups of bank employees protesting outside offices, for example, and putting pressure on investors or executives at larger firms. P.K. Malhotra, a deputy managing director at the State Bank of India, the country's largest bank, said his team received extra training, including in psychology, and was systematically chasing up payments, as others in the bank accelerated sales of seized assets. "The focus (is) on getting court cases expedited. Less on the paperwork and more on the fieldwork," said Malhotra. Executives say it's too early to measure overall success, but there have been some wins for India's bruised banks. Suzlon Energy this year sold its German unit, Senvion, for 1 billion euros ($1.1 billion) in cash - less than what it paid to buy the asset in a deal completed in 2011. It crystallised a huge loss after banks piled pressure on the loss-making wind-turbine maker to cut its debt. More than two dozen lenders led by SBI are looking for an investor in Electrosteel Steels Ltd, whose near-$1.4 billion bank loan is strained. Rather than 'evergreening' the loan - a process of regular review and renew - lenders are getting involved in the buyer talks, an individual with direct knowledge of the matter told Reuters. Early WarningsGross bad loans at Indian banks rose to 3.1 trillion rupees ($48.83 billion) as of end-March, or 4.6 percent of total loans, according to central bank data. Including loans that are stressed but not yet classified as bad, total troubled loans made up 11 percent of total lending. Banks say they are now moving faster to bring that down, stepping in at the first sign of trouble, sending out more officers to chase borrowers and putting more people on the job through specialised branches. Some are trying to speed up the sale of seized assets by advertising them on large screens at shopping malls. "These days people are getting on to the job the moment you have an early warning signal that something may happen in a company and you have thousands of crores at stake," said a senior banker at a big state-run bank. India uses crore to denote a unit of 10 million. SBI has set up branches focussed solely on recovering loans, and, to speed up cumbersome paperwork, encourages managers to snap pictures of themselves on seized assets - proof of the change of ownership. It plans to set up a web portal to showcase all the seized assets available for auction. "Companies can sometimes fall in love with their assets, but bankers can't afford to do that," said SBI's Malhotra. Union Bank of India Chairman Arun Tiwari said his state-run lender has changed its system to put three separate general managers in charge of recovering different classes of loans - large, middle and small. "You have to go out in the field," he said. (Reuters)
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Daily hospital cash plans may come handy in meeting non-admissible and incidental expenses incurred during hospitalisation, says Sunil Dhawan The moment of truth in the business of insurance comes at the time of claim. For health insurance policyholders, the surprise could come when one is presented with the bill by the hospital. There could be a possibility that the insurer is not paying up for a portion of the bill even if it’s an admissible hospitalization according to their underwriting rules. This is because not all hospital expenses gets a clearance from insurer. As a policyholder, one might have to bear a certain portion of the bill. At times, policyholders are not ready for such out-of-pocket expense. What Mediclaim doesn’t pay up….: There are certain hospital expenses which are excluded and are termed as non-admissible in hospitalization policies. This is very much a part of the policy document that policyholders receive after buying a policy. Further, there could several incidental and out-of-pocket expenses that one might incur during the time when the person is hospitalized. …Get it from here: Here comes the role of a health insurance product which is different from what Mediclaim is and it’s called Daily Hospital Cash (DHC) plan. As the name goes a Daily Hospital Cash plan is a health insurance plan which provides claims on daily basis after one gets hospitalised. Unlike Mediclaim, in which claim is equal to the hospital bill, a DHC plan would merely look at the number of days of hospitalisation and pay up. There is no link or connection with the actual expenses on hospitalisation. And, you can use DHC to claim the amount in addition to your Mediclaim. One more plus: In addition to meting your incidentals expenses, DHC helps to keep your NCB intact too. Say, there's a 2-3 days of hospitalisation and the hospital bill is not a big amount. Using your health insurance to pay for it, will impact your no-claim bonus (NCB). In such a case, using the DHC plan will not only pay hospital bills but also keep your NCB safe. How much cover? Unlike choosing the sum assured in a Mediclaim, in DHC one has to choose the amount of daily benefit he wants. Most plans have Rs 500 / Rs1,000 / Rs1,500 / Rs 2,500 or Rs 3,000 benefit amount to choose from. One can buy it individually or for entire family members too. DifferentiationThere are lots of differentiations and restrictions among DHC plans, which could be in terms of number of days of coverage or the maximum claim limit. Prefer buying it from your existing insurer. The end note: Under no circumstances, depend on DHC for your medical insurance needs. The individual health insurance policy or the family floater should be the first ring of defense against hospital bills as it is much more comprehensive. Once you have bought Mediclaim, get a critical illness cover especially if you are around age 40. Thereafter, one may consider buying DHC to cover the incidental out-of-pocket costs incurred during hospitalisation.
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Transferring funds through email and without recipient’s bank details is easier now The digital revolution is very much on and moving at top speed. Banking has always been ahead in the curve when it comes to meeting customer’s needs in the financial services space. IndusInd Bank has recently launched QuickPay, wherein the bank’s customers can send money instantly through SMS, E-mail and social media platforms. What’s interesting is that you do not need the beneficiary Bank Account details. All that is required is just an E-mail ID or Mobile Number. Here are the steps:1. Sender visits bank website 2. Sender fill the E-mail Id or Mobile Number of the receiver. 3. A link is sent to the receiver.Recipient enters Account Number, Bank Name, IFSC code and receive funds. Only the banks which are supported for IMPS transactions can be used to transfer funds.4. Instacode is a One Time Password generated by the system and sent to the remitter via SMS. Instacode has to be shared with the recipient for them to receive funds into their account. And all of this is instant transfer of funds! At the launch, Mr. Ritesh Raj Saxena, Head – Savings, Digital & Payments Business, IndusInd Bank said “IndusInd Bank’s QuickPay service is aimed at delighting the customers in the digital age. Today’s young & digitally savvy customers expect payments to happen instantly & seamlessly. This service empowers IndusInd Bank consumers to send money to anybody, anywhere on a real time basis via social platforms. Bank will also soon launch its Wallet based payment App.”
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From filing tax returns to acknowledgment, you can do it all from the comforts of your home now. Here’s a lowdown on how to file your tax returns onlineBy Sunil DhawanLike seasons, it comes back every year. It’s a ritual that every tax payer has to undergo. Paying taxes is not enough; one is mandatorily required to file income tax returns (ITR). The process is no longer tedious and complex; ITR can now be filed in a few easy steps online.Who Has To File Anyone whose gross total income exceeds the minimum exempted limit in the financial year ending 31 March, 2015 before taking deductions into account has to mandatorily file income tax returns. Every year, the last date is 31 July, but this time, it has been extended up to 31 August. For the financial year 2014-15 (assessment year 2015-16), the exemption limit is Rs 2.5 lakh for men and women under 60 years of age; Rs 3 lakh for senior citizens above 60 but under 80; and Rs 5 lakh for those above 80.What’s New This YearNot much other than a new ITR form and additional information sought by the Income Tax department. Individuals who only have income from salary and own more than one house property but do not have any capital gains have to use the new form — ITR-2A. According to Sudhir Kaushik, co-founder and director of tax-filing service provider TaxSpanner.com, “From the tax payers’ point of view, there is no major change between ITR-2 and ITR-2A as the assessee has to fill relevant columns only. It’s just that, they now have to remember to fill the ITR-2A if they do not have an income from a business or profession or capital gains or hold foreign assets.” As far as the new information is concerned, tax payers have to furnish details of all bank accounts, Aadhaar number and passport number, if available.The Options There are two ways to file returns — the traditional way and electronically over the Internet through the e-filing process. Online filing is mandatory for all those whose total income in the previous year was Rs 5 lakh or more. According to chartered accountant Suresh Surana, founder of consulting firm RSM Astute Group, “This year onward, super senior citizens (80 years and above) need not e-file their returns even if their total income exceeds Rs 5 lakh during the year.” WHICH FORM SHOULD YOU FILL?ITR-1 SAHAJIncome from salary/pension income from one house property income from other sourcesITR-2Income from salary/pension income from house property income from capital gains income from other sourcesITR-2AIncome from salary/pension income from house property income from other sourcesITR-4S SUGAMBusiness income income from salary/pension income from one house property income from other sourcesThe traditional method involves filing returns on the physical form offline at the nearest designated Income Tax ward or through a tax return preparer (TRP). TRP’s are certified individuals by the Income Tax department who help prepare and file tax returns on behalf of taxpayers.Online FilingThe Income Tax department’s website offers e-filing facility that can be used free of cost for all sources of income. In addition, there are several authorised commercially available websites such as Taxsmile, Taxspanner or clearTax, which charge a fee depending on the sources of income but some even provide e-filing services for no charge. Archit Gupta, founder and CEO of clearTax informs, “Taxpayers can e-file with clearTax free of cost. We also have CA-assisted plans that taxpayers can buy if they need fully-assisted tax filing.” The Income Tax department website explicitly mentions, “There are commercially available software and websites offering e-filing, but use of Income Tax department’s software will largely ensure preparation of error-free returns thereby avoiding any need for future rectification due to data validation mistakes.”Whether it’s online or offline, one needs to get hold of the right ITR form. Based on the sources of income, the forms differ. The five different sources of income are ‘income from salary’, ‘income from house property’, ‘income from business or profession’, ‘income from capital gains’ and ‘income from other sources’. An individual can have income from one or more sources. Picking out the form and inputting right figures at the right place can, however, be tricky. Commercial websites come handy in such situations. Gupta says, “Our site saves tax payers from the headache of choosing the right form; we select the form applicable based on the income sources and data entry of tax payers.” There are many who do not want to input any details by themselves; they can just upload their Form 16 and get the job done. “This helps users file by simply uploading their Form 16 and adding any income they have other than salary,” adds Gupta.Data Required When e-filing tax returns no documents need to be attached or uploaded, other than Form 16 — statement issued by employer — that shows tax deducted on salary income. Other than that, Form 16A, which too is a TDS certificate on deductions on income from sources other than salary issued by those who deduct tax including banks and companies with whom there are fixed deposits, is required.Tax payers who have worked for more than one employer in a year have to take extra care. Surana informs, “A person who has worked for more than one employer needs to check if the Form 16 issued by the employers are correct in all aspects and that taxes have been deducted at appropriate rates and no losses, deductions, basic exemptions, etc., have been considered twice by the employers.” Another important thing to consider would be Form 26AS, a statement showing all taxes collected from income. At times, tax is deducted from income, but doesn’t reflect in records. This form helps in reconciling the tax status to a large extent. 10 Steps To Filing ReturnsThe process for filing ITR has been made extremely easy and convenientLog on to an e-filing application and go to ‘Downloads’ to select applicable Income Tax Return formDownload the excel utility of the Income Tax Return formFill the excel utility Generate an XML file and save in desired path/destination on your desktopUpload returnsSelect the ITR Form and the assessment yearBrowse and select the XML fileUpload the Digital Signature Certificate, if availableBrowse and select the XML fileView or generate a printout of acknowledgement/ITR-V FormThe ProcessThe e-filing process has been made much easier now. There is an option of pre-filling information in the software for preparing the return forms. Tax payers need to just fill in the PAN, and all personal information and information on taxes paid and TDS are auto-filled in the form.Once the registration process is complete and the details are either uploaded or manually entered into the software of the website, an electronic return in XML format is generated. A PDF file of the relevant ITR form is also created along with the XML format. Tax payers can download this ITR form and submit it at the ITO and get an acknowledgement. For those who want to avoid visiting the ITO can use digital signature (DS) to complete the e-filing process. In this case, the acknowledgement is e-mailed to tax payers. But if the file is uploaded on the tax department’s website without the DS, people can send the ITR-V by courier to the ITdepartment.Tax payers can get a DS from any government-authorised agencies as well as private ones.Digital Verification In order to keep the entire process digital, the Income Tax department has devised a way to avoid sending the ITR-V by courier. The department will send tax payers a one-time password (OTP) on their mobile phones after verifying their Aadhaar number and other details. Validating with the OTP will be enough and the need to courier the ITR-V will be done away with. According to Surana of RSM Astute Consulting Group, “Individuals need not sent physical ITR-V to CPC if they mention their Aadhaar card number in the return of income. New ITR forms will be linked to Aadhaar card and verified by newly introduced Electronic Verification Certification (EVC).”The Difference If one is e-filing through a non-governmental website, it is important to first ensure that the website covers all the income sources that you need. Get clarity on the costs and the process involved for e-filing on such sites. For those who aren’t sure as to how to file online, private websites can come in handy. One can just call up the customer care and get help on filing. It helps if there are more than one sources of income and requires some calculations. The free-version is typically for those with income from salary only. The advanced version is needed when one has more than one source of income. Tax payers should mention special events such as arrears as clubbing of income is taken care of by the site. Conclusion It’s always better to file returns as early as possible and not wait till the last minute. While e-filing, one can finish the task in multiple sittings. Plus, those travelling outside India can just log on to the website and complete the task. Sunil@businessworld.in(This story was published in BW | Businessworld Issue Dated 10-08-2015)
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Investors sure are pumping in money at full throttle, but they are taking over the controlling rights just as wellBy Paramita Chatterjee & Vishal KrishnaGarnering funds is not difficult for Indian companies. Retaining ownership of companies is. Private equity (PE) and venture capital (VC) funds are only too happy to come on board, but they like to secure their exit route as they invest. As a result, they are increasingly getting involved in the operations of their portfolio companies, especially e-commerce companies and startups. Some are even taking control of the management of investee companies in order to prepare them for exits as in today’s environment investing is easy but cashing out profitably is not.In e-commerce companies, for instance, investors are setting up leadership teams for strategic areas of businesses such as marketing and finance to help them improve efficiency and operating margins and build scale, both organically and inorganically. In fact, apart from the technology roadmap that founders continue to build, most aspects related to running businesses are controlled by the funds.Fin, a technology startup funded by Kalaari Capital, has an operations team set up by the fund, while property portal housing.com has a new interim CEO, Rishabh Gupta — picked by the fund —replacing founder Rahul Yadav. In many e-commerce companies such as Snapdeal, Flipkart, Olx, Ola, Quikr and Paytm, the founders have given up the majority stake to focus on what they do best.Furniture and homedecor retailer FabFurnish.com is one of the latest to restructure its management with its co-founders Vikram Chopra and Mehul Agrawal stepping down from leadership positions to advisory roles within three years of starting up. The move was aimed at bringing about a reformation in the work culture and organisational composition. This is going to be a fluidic process but such moves are not going to deter investments.On The Gravy TrainMoney has been coming easy for some. A few big-ticket transactions sealed so far this year include Baring Asia’s $440-million buyout of ATM cash management services firm CMS Info Systems. This was followed by online cab aggregator Ola’s $400-million draw from GIC, DST Global and Falcon Edge Capital. Other deals during this period include TPG Capital’s acquisition of 25 per cent stake in private hospital operator Manipal Health Enterprises. Recently, Gurgaon-based ShopClues raised $100 million from TigerGlobal, Helion Venture Partners and Nexus Venture Partners, while Rocket Internet AG, along with other investors, infused $110 million in food delivery marketplace Foodpanda. “Many of the funds are focused on letting the entrepreneurs stick to their core vision, which is technology,” says Sanchit Vir Gogia, CEO of Greyhound Research.“There is a shift in business ideas; today, the intervention of technology-focused businesses is a lot higher,” says Sanjeev Agarwal, co-founder of Helion Ventures. What’s more, risk capital investors are showing great confidence in the new breed of Indian entrepreneurs. “Today, the contours of PE and VC investments in the country have changed with investors eyeing a lot more new age, consumer oriented-companies for investments,” says Avnish Bajaj, co-founder and managing director of Matrix Partners India. The investment firm recently infused around $7 million in two startsups — hotel aggregator Treebo Hotels and Bangalore-based recruitment startup “Belong”. Earlier, in 2007-08, when PE activity was at its peak, traditional sectors such as infrastructure and real estate were the hot favourites of fund managers. “While investors continue to scout for high-quality, high-growth businesses in the traditional space, new age sectors like mobile and e-commerce are also becoming popular with investors,” adds Bajaj.The startup businesses that have emerged as hot picks are largely technology firms in consumer services. This is because mobile commerce is growing with deepening digital penetration; there are 150 million broadband subscriptions and 36 million smartphone users today in India.The traditional sectors that have consistently stayed on top of the investment cycle are technology and healthcare. While technology can be classified as both new age and traditional, healthcare is driven by domestic consumption.Investors Love IndiaAccording to consultancy firm Grant Thornton, in the first five months of this year, as much as $5.8 billion has been pumped into 376 companies. This is about 66 per cent more than that in the corresponding period last year. It is good news for the industry especially since between January and May in 2014, PE and VC firms invested $3.5 billion, 23 per cent less than that in 2013. The investment was $4.6 billion for that period in 2013.“India is in a sweet spot with accelerating GDP growth and stable macro indicators,” says Sanjiv Kaul, managing director at home-grown PE biggie ChrysCapital. He adds that market valuations are high with the potential risk of earning downgrades. “The perception still remains that investment activity has bottomed out, but going forward, deal activity is likely to pick up,” adds Kaul.Reduced Deal SizesOver the last few years, the industry has witnessed a fall in the deal size due to increased activity in the VC space, which, like PE firms, have developed a preference for India’s budding entrepreneurs. A lot of these investments are going into e-commerce and digital — sectors that ride on domestic consumption. Here, the capital requirement is slightly less than that in traditional sectors such as real estate and infrastructure.VC investments typically go into startups that require early-stage funding, hence the investment amount can be as small as $1 million. Private equity, on the other hand, is growth capital provided to mid-sized companies to facilitate expansion. Therefore, their deal sizes are large.Today, the preferred size of any PE/VC deal is $18 million — the lowest in the last 10 years. In 2007 and 2008, the average deal size for PE and VC investments was $59 million and $40 million, respectively.“Today, India is in a very interesting stage with more entrepreneurs churning out winning ideas and attracting millions in funding. With startups mushrooming, the demand for small-ticket transactions has gone up significantly,” says Vishal Gupta, managing director at Bessemer Venture Partners (India), one of the early investors in e-commerce firm Snapdeal.However, there is one thing that fund managers are wary of: high valuations. PE experts fear that going forward, a lot of deals may be sealed on the basis of speculation rather than on actual fundamentals. This is possible as startups usually do not have sufficient earnings hence they do not use standard valuation parameters like price to earnings or earnings per share. The valuation is based on discounted cash flow, an estimate of cash generated on a time series, for the future. Currently, there is too much of capital chasing few good quality deals. It is this demand and supply gap that is leading to inflated valuations. paramita@businessworld.in & vishal@businessworld.in(This story was published in BW | Businessworld Issue Dated 10-08-2015)
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