The COVID-19 pandemic has brought
the world to its knees. Economic giants like US and other European countries
have been impacted the most. The world economy has been brutally hit and it is
slowly moving towards recession. In Asia, India is badly hit by the outbreak
due to strict lockdown and rising cases. The world has to come together to mitigate
or reduce the impact of virus in days to come to revive economic status of the
world.
Covid-19
is certainly going to bring challenges for private equity fund.
Currently, it can only be speculated as to how Covid-19 has and will affect the
Private Equity (PE) market.
Market Sentiment
The already sluggish Indian economy
has created uncertainties regarding private equity investment in Indian
companies. Investors have adopted the ‘wait & watch’ approach until the
market stabilizes while others are being extremely cautious in their investment
decision. It will be too early to decide in which direction this crisis will
take the PE space- a buyer's market or a seller's market.
Deals
The crisis has slowed down deals.
The two most important factors for sealing a deal are- financial stability of
the company and cash in the hands of investors. At this time, investors have
become watchful and are looking to stabilize their portfolio whereas sellers
are reluctant to wipe off their assets due to a drop in valuation. Such a
mismatch between the hopes of the buyer and the seller has become a hindrance
in making a deal.
Returns
The returns will take a blow for a
while as the investor's portfolio value is expected to fall considerably.
Market dynamics are going to change and Indian companies might undergo
structural changes. Hence, private equity players will need to reevaluate their
portfolio and investment decisions in order to minimize risks and maximize
returns.
Impact on Startups
Indian startups get a lot of
investment from foreign investors. Currently, the Indian startup industry is in
turbulence due to disruption in the investment activities due to Covid-19,
causing deals getting delayed and investments being paused. The pandemic will
test the mettle of Indian startups on several grounds and the ones who manage
to sustain this crisis will only emerge stronger and grow at larger.
Apart from the severe health
implications, Covid-19 has had a notable impact on businesses and the economy.
The consequences of Covid-19 are changing day by day. The private equity market
is not all gloomy. Many investors are investing at a lower valuation or looking
to invest in sectors that have changed consumer preferences.
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