23 ASIAN LEGAL BUSINESS – JULY 2024 WWW.LEGALBUSINESSONLINE.COM INDIA REPORT more manufacturing to India than in the recent past, particularly in the technology, semiconductor and renewable energy space. “There’s also been a significant rise in Private Investment in Public Equity (PIPE) deals. Investors are attracted to the market-based valuations and liquidity these deals offer, and this trend looks set to continue in 2024,” Vaish explains. Pro-business regulatory reforms of the last few years have made India an attractive market for global private equity investors and large corporates. Easing restrictions on ‘round-tripping’ investment structures, tax barriers, foreign direct investment, and an increased focus on ESG disclosure have cleared the way for foreign capital. “Significant regulatory changes are expected to facilitate increased deal activity. The tightening of unsecured lending regulations by the Reserve Bank of India (RBI) in 2023 may prompt the consolidation of Non-Banking Financial Companies (NBFCs) to comply with capital norms. The liberalization of insurance regulations and the relaxation of Foreign Direct Investment (FDI) norms, which allowed higher stake ceilings for foreign investors in 2022, are anticipated to continue attracting new strategic and private equity players in 2024. Additionally, the RBI’s 2023 digital lending guidelines, which permit Fintech lenders to enter guarantee arrangements for loan defaults, are expected to strengthen Fintech lending business models and stimulate inbound deal activity,” Vaish says. Adds Jayachandran: “SEBI’s recent decision to open the door to fixed price de-listings is a long-overdue and welcome move. This will help structuring deals where acquirers were previously deterred by the prospect of being held hostage by a small group of minority shareholders.” INVESTOR CONCERNS While domestic regulatory changes are key to making India a good place to invest, international geopolitical and economic conditions may likely result in investors taking a cautious approach. Geopolitical tensions, particularly the protracted conflicts in Ukraine and Gaza, coupled with decelerating capital markets and apprehension over potential global interest rate hikes, are dampening the appetite of private equity funds and multinational corporations for emerging market investments. Shankar and Raghani at JSA say that the fear of economic turbulence, given India’s coalition government, is also a major challenge to dealmaking in the second half of the year. With increased regulation also comes increased regulatory scrutiny, which may impact the country’s investment climate. “Recent regulatory actions by the RBI have raised concerns in the finance, banking, and fintech sectors. Stricter regulatory oversight of business deals around compliances, competition, and pricing may impact deals, Shankar and Raghani say. “The rise of artificial intelligence and its impact on certain sectors has cautioned the investors as it may disrupt the traditional business models,” they add. Vaish at Luthra adds that regulatory changes, such as the recent amendments to the Competition Act, 2022 in addition to hidden liabilities pertaining to ESG and data privacy compliances, may impact deal timelines. Competition from capital markets, with sellers preferring an exit via an IPO as opposed to a sale, is also a concern for dealmakers in 2024, Vaish adds. Lastly, the outlook on financing for deals remains positive despite a general global funding slowdown. Multiple financing options are making dealmaking more competitive, often resulting in higher valuations. Shankar and Raghani of JSA elaborate on these options: “Some of the trending financing methods include equity financing, external commercial borrowings, equipment financing, invoice factoring, and the issuance of debt securities by companies. Furthermore, intercorporate loans, working capital loans, and business lines of credit are facilitating easier cash availability.” This diversity in financing is driving market competitiveness, as CAM’s Jayachandran notes: “Deals are getting more competitive, with the combination of private equity firms and large corporates with strong balance sheets spurring much of the activity. This is particularly evident when coupled with the growth in equity capital markets.” Looking ahead, Luthra’s Vaish offers an optimistic perspective: “While 2023 saw a more cautious approach, the outlook for the coming year is positive. We’re expecting better valuations and strategic opportunities to drive increased activity. Importantly, companies are likely to leverage their strong cash positions to finance acquisitions. Many corporations have accumulated substantial cash reserves, which they can use alongside corporate funds and equity to finance deals.” Image: Gorodenkoff/Shutterstock.com
RkJQdWJsaXNoZXIy MjA0NzE4Mw==