The private equity (PE) business in India seems to be soaring this year. Driven by a clutch of big-ticket deals in the consumer technology sector, PE investment is expected to hit an all-time high of $22 billion during 2015, according to Bain Consulting. PE investments in the first nine months of CY2015 has already topped $16.7 billion—the top 10 deals accounting for 25% of total deal value—exceeding the $15.2 billion achieved in all of CY 2014 and quite close to the earlier high of $17.1 billion achieved in 2007. The top four deals—Flipkart, Paytm, Snapdeal and OlaCabs—alone accounted for over $2.2 billion. Consumer technology ($5.4 billion), real estate ($3.6 billion) and BFSI ($2 billion) made up for 66% of the total deals in the first nine months of 2015. This year is the best since 2007 when PE investment rose largely based on optimism on the robust growth of the economy. The average deal size this year has risen 19% to $21.4 million from $18 million last year. If one excludes deals less than $10 million, the deal size is $59.7 million against $50.3 million last year.
Quite like 2007, the greater PE interest this time round too is driven by optimism on the India opportunity. The other positive is that many early stage companies in India are scaling up. Of the 697 deals this year, 67% are early stage deals as opposed to 55% last year. That is a clear indicator of potential future growth. The concern area for the PE industry currently relates to exits. Many funds have had to hold on to their investment longer than originally planned. The value and volume of exits have been lower than expected—exit volumes rose 3% to 156 and value just rose 2% to $4.8 billion. That is compounded by the fact that the stock market has not been all that attractive since retail investor interest in India is still muted. While public market sales is still the preferred mode of exit, the larger exits are by secondary sales. During the year, the top 10 exits accounted for 40% of the total PE exit volume, with TPG Capital from Shriram City Union Finance being the biggest one, at $386 million. Most exits have been in real estate, financial services and telecom.