The advent of private equity in India & Its impact on valuation landscape

Private Equity is a rapidly growing alternative investment fund (AIF) where a company raises Capital through limited partnership from Financial Institutions and High Net worth Individuals (HNIs). The noticeable fundamental difference between Ordinary Equity & Private Equity is as follows; Common Stock could be listed in a Recognized Investment Exchange for active trading which determines the Market Price for the Company’s Stock & consequently the Company’s Market Capitalization, whereas Private Equity deals with strategic investment in companies through the Buyout of Majority Stake in-order to acquire control over the business. PE firms often than not plan to exit within 10 Years span. PE firms invest in companies with high growth potential, sustained competitive parity powered by innovation and long term business objectives. They keenly focus on multitude advancing technologies especially in the fields like Bio-tech, Chemical-Sciences, Nano-Technology, Financial services, Software & SaaS.Growth equity is also a concept that falls under this bracket where an investor tries to maximize the value of their investment by being a catalyst to facilitate the transformation of a smaller company into a more Profitable Business Organization in a significantly narrow timeframe. This research paper intends to validate the progress witnessed by the private equity industry in India and the consequent developments observed in the valuation of private companies funded by this means. The research does not just limit itself in educating the readers about the known factors driving the valuation but also consider factors that have not been primarily credited but are equally crucial for the rate at which PE has been appreciated by investors and companies. The comparative analysis of empirical data discloses that certain sectors mostly funded by private equity have outperformed their peers and companies funded by PE have shown substantially higher returns as opposed to those companies funded otherwise within any given sector. The readers will gain a sound understanding about the dynamic valuation landscape, modes of deal exits responsible for value creation.