Indian PE-VC investments exceed $60 bn across 2,000 deals in CY22

Normalises from peak value of $69.8 billion in 2021

private equity, private equity investment, venture capital,
While sectors such as consumer tech and IT and enterprise tech segments saw a decline, healthcare investors had a remarkable year with marquee exits of healthcare providers throughout the year.

India’s private equity and venture capital (PE & VC) investments in the Asia-Pacific region increased from 15% to 20% between 2021 and 2022 due to China’s tailwinds and India’s macroeconomic robustness, amid decelerating capital flow in the region, according to Bain & Company’s India Private Equity Report 2023.

India saw investments of $61.6 billion in a difficult year for private equity globally in 2022, which normalised from peak value of $69.8 billion in 2021. With more than 2,000 deals, the strong deal flow from previous years continued. Traditional sectors led by BFSI, healthcare, energy and manufacturing demonstrated resilience and grew 50% to $28 billion enabled by a strong domestic consumer sentiment.

Also Read: Private equity and venture capital funds’ investments decline 4 pc to USD 5.3 billion in March

Sustainable investments also emerged as a breakout theme in 2022, with investments in clean energy and EVs accelerating to reach nearly $7.9 billion. While sectors such as consumer tech and IT and enterprise tech segments saw a decline, healthcare investors had a remarkable year with marquee exits of healthcare providers throughout the year.

“Long-term prospects of the Indian market continue to be bullish, in spite of the near-term global slowdown. Robust fundamentals of the Indian economy make it an attractive destination for private equity, evident from the fact that India crossed $60 billion in investments for a third time in a row,” said Arpan Sheth, Bain & Company partner and co-author of the report. “India has also continued to increase its share of PE-VC investments in the Asia-Pacific region, with $1 of every $5 invested in the region being invested in Indian assets,” Sheth added.

While the first half of 2022 continued the momentum of 2021, the private investments ecosystem slowed in the second half as global sentiment turned conservative amid mounting geopolitical tensions and cascading macroeconomic challenges. The mix of deals shifted, with mid- and small-sized deals gaining share in the overall deal value, while blockbuster deals of more than $1 billion were harder to come by. Buyouts also slowed due to gaps in valuation expectations and tighter credit markets.

“We expect the short-term softness to continue with growth uncertainties, tight credit markets in the US and tempered public market valuations (and implied private valuations), leading to delays in deal closures with limited deployment pressure on investors,” said Sriwatsan Krishnan, partner and leader of the PE practice, Bain & Company.

Also Read: Private equity investments muted

Venture capital continued to contribute significantly to deal volume in the year. However, it saw a dip in average cheque sizes. PE deal value remained relatively steady, despite lower volumes. Traditional sectors dominated top deals, with the most notable deals in 2022 being in media & entertainment (Viacom18) and banking (Yes Bank), followed by multiple large deals in energy and manufacturing.

Consumer tech and IT sectors, which drove around 60% of the deal value in 2021, contracted to nearly 30% in 2022. These sectors slowed through the year amid testing times for new-age business models and challenges in export demand for the IT sectors, in an uncertain global environment. Exits declined in 2022 to $24 billion from an all-time high of $36 billion in 2021. Traditional sectors dominated exits as well, with share of exits greater than $100 million expanding to 75%.

Dry powder was robust in 2022, on the back of record fund-raising driven by buoyant PE sentiment of 2021. Even with an expansion in fund sizes, India has increased its share of the Asia franchise for leading global funds. Leading Indian general partners (GPs) crossed the $1-billion fund size mark for the first time. Despite an abundance of dry powder, the changing sentiment throughout the year has driven investors to consolidate focus on fewer, higher-quality assets and drive value creation with a spotlight on profitability, within their portfolios.

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First published on: 20-04-2023 at 02:45 IST