India will remain top choice for private equity investments despite external shocks: Jefferies

Global brokerage firm Jefferies in its latest report identifies India as a prime market for listing private equity (PE) investments, suggesting a huge pipeline for investment bankers globally. The report noted that despite the challenges faced by the private equity industry, including a liquidity squeeze and declining distributions from major firms, India remains a favorable environment for capital raising and investment opportunities.

"This year a report, suggests a potentially huge pipeline for investment bankers globally but will there be the demand for all the stock, and at what valuations? For now, as previously, the best market for listing PE investments remains India" said the report. The report also noted that the growing likelihood of a renewed easing cycle by the Federal Reserve could provide relief to the leveraged private equity sector. 

However, it also raises concerns about potential economic downturns globally that may accompany lower interest rates. In its previous report also Jefferies noted that India's stock market has shown remarkable resilience and growth, particularly after the general election results. The report noted that as of July 2024, India's stock market capitalization stands at an impressive 145 percent of GDP, a substantial increase from 52 percent in March 2020. 

While this valuation may not be considered cheap, it does not warrant a sell-off from a long-term perspective. According to the report, the Indian market is now capitalized at approximately USD 5.2 trillion, reflecting a 296 percent increase from its low of USD 1.3 trillion in March 2020, indicating a robust domestic demand-driven story.

"While stock market capitalization is now 145 percent of GDP, up from 52 percent in March 2020. That is no longer cheap. But it is not a reason to sell, save from the most short-term or tactical of standpoints" said the report. The report also highlighted that the Indian market's transformation is also evident in the growing participation of retail investors through Systematic Investment Plans (SIPs) and the National Pension System (NPS). 

This shift mirrors the development of the "cult of the equity" seen in the US since the 1980s, indicating a promising future for equity investments in India.