The Private Equity Influencers: HNIs & UHNIs

The Private Equity market movers.

Early-stage, growth-stage, or scaling startups and pre-IPO companies or even distressed public companies require significant investments to bring a meaningful shift in their growth trajectory. However, where do they get these investments from? The investments are either made by Foreign Portfolio Investors (FPIs), Foreign Institutional Investors (FIIs), Domestic Institutional Investors (DIIs), Venture Capitals (VCs), Growth Capitals (GCs), Private Equity (PE) along with HNIs and UHNIs contributing a good portion through the route of committed capital which unfortunately ends up in a blind pool. Again if you’re feeling uncomfortable with jargon, I request you visit our previous article titled “Private Markets: Above & Beyond”.

A bone of contention with the blind pool is that an investor isn’t aware of the usage of the greens that they have committed. That being the case, the HNI’s and UHNI’s have taken the matter into their own hands and have started making direct investments into several privately-owned Indian companies. Since when, as you may ask?

May 23, 2019, is the date when Srikanth Subramanian, senior executive director, Kotak Wealth Management, voiced his observation; “It’s the first time that we are witnessing a trend where Indian UHNI investors are investing directly in Indian startups. They are interested in direct co-investing opportunities. Till now, Indian UHNIs have never participated in emerging companies and missed the opportunity”.

India is home to more than 60K startups and proudly ranks 3rd in the world’s largest startup ecosystem rankings. Two of these significant data points, along with the blind pool’s secretive approach of investing, have enticed the big whales into the private equity market. And as we will have more capital entering the private equity space, there will be a ripple effect on the amount of funding, the number of exits (zone of actual realization of gains), and the magnitude of wealth creation.

Moreover, the SEBI has injected a vile of relaxation into the Alternative Investment Fund (AIF) regulation which has ultimately made angel investing and investing in private equities a lot easier than before. In addition to regulatory relaxation, there are over 150 private Indian companies that are willing to file for an IPO in the next 3 to 4 years. This uproar will make the market capitalization of Indian public markets rank 5th largest in the world, as reported by Goldman Sachs.

It doesn’t end here! Astoundingly, there are 71 unicorns valued above $1 billion, which are yet to go public! Imagine the amount of wealth creation it will bring for big betters. These were the reasons why HNIs and UHNIs are directly pouring capital into privately listed companies like NSE, CSK, Pharmeasy, and many others.

Well, now let’s feed our fact-thirsty minds with some real-world examples.

We have all heard of HNIs money wavering at the point of attraction in public markets from time to time. But does their capital inflow into private equity also make sense? Absolutely, Yes!

So, how have they moved the private company share prices until now?

Let’s start with a company from the investing fraternity, the National Stock Exchange of India Limited (NSE).

As reported by the Economic Times on November 25, 2021, NSE’s unlisted shares surge amid rising HNI interest.

The shares of NSE were trading at INR 1,000 in March 2020. Post this, it registered a surge, and the shares were quoted for INR 1,900 apiece in January 2021. As of now, they are available for INR 3,600 apiece in the private equity space. What brought major price action? Such aggressive upward movement in stock price was brought by heaving capital pumping from HNIs, and institutional investors as NSE is the leading stock exchange in India with the highest turnover every year since 1995. In addition to this, it has a leading market share (by total turnover) of 94% in the Equity Cash market, 100% in Equity Futures, 100% in Equity Options, 74% in Currency Futures, and 68% in Currency Options for fiscal 2021. Lastly, it is the world’s largest exchange by trading volumes as it has outpaced the US-based CME group, which is the world’s largest derivatives marketplace.

Another report from Economic Times on October 7, 2021, read as; After a 10x rally in 3 years, this unlisted ‘champion’ stock still has more legs.

Second on our list is the only Indian sports franchise that is IPO-bound, Chennai Super Kings. CSK was previously backed by India Cements. However, they demerged in 2018, and the separation made sense as the share prices have soared by 1000% after November 2018. But was it just because of a demerger? Straight up, no is the answer to it. Why? It’s in view of the fact that CSK is a profit-making entity that is valued at INR 3,300 crores, and it reported a PAT of INR 40.26 crores in 2020–21. The fundamentals are indeed strong, but other aspects that factor in for luring HNIs like Radhakishan Damani to hold 2.39% in the 4X IPL champions is its exceptional brand value, magnanimous sale of merchandise, and revenue generation from the yellow army’s deep-seated presence on social media platforms.

As reported by the Mint, Byju’s FY20 profit grew over two-folds to ₹50.76 crores.

Moving on to the next, we have our Indian cricket team’s official sponsor. BYJU’S. Vividly stating, there is a lot of speculation around where will it get listed? Now, if it’s an Indian company, then it should get listed in India only, right? That’s not the case, though! BYJU’S is eyeing for a SPAC to get listed in the US markets. However, the company has also shown interest in getting listed on a domestic exchange in case they plan on slipping out of the SPAC deal. Here, the point is not where they are going to get listed; the point is, why are HNIs so interested in them?

It’s simple! The company is valued at $21 billion as per CB Insights as reported by Business Standard in 2021.

Secondly, the company is working determinedly to achieve $1.3 billion in revenues by March 2022, which looks achievable after looking into the company’s fundamentals. Furthermore, BYJU’S reported a stunning jump of 82.31% in revenue between FY19 and FY20. It also has a strong international presence as well, for the reason that its earnings from foreign grounds grew by 232.2%, whereas domestically, it rose by just 59%.

Bringing it to a close, I want to bring this fact to everyone’s notice that the 27 privately listed Indian companies have delivered 59.62% in returns in 2021. In contrast, the maximum returns from FD stood at 7%, 21% for Sensex, 23% for Nifty, and 20% for Dow Jones. Keeping that in mind, we can say that the idea of investing in a growth story is worth looking at, and the HNIs have mastered it as they are the ones who are getting their pockets swelled up!

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