India last year got 20 per cent of the total private equity and venture capital (PE-VC) investments in the Asia Pacific, said a report on Wednesday, making the country a "bright spot" amid decelerating capital flow in the region.
India got investments worth $61.6 billion last year: the third time it topped the $60-billion mark but moderating slightly from $69.8 billion in 2021, according to the report written by consulting firm Bain & Company in collaboration with Indian Venture and Alternate Capital Association (IVCA).
There were more than 2,000 deals in 2022, continuing the strong flow from previous years, said the ‘India Private Equity Report 2022’. Investments in banking, financial services and insurance (BFSI), healthcare, energy and manufacturing grew by 50 per cent to $28 billion, enabled by strong domestic consumer sentiment.
Investments in clean energy and EV amounted to $8 billion, marking the preference for ESG. Consumer technology and IT/ITeS segments saw a decline in investments. Healthcare investors made marquee exits 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, in a statement in Washington.
“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.”
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PE-VC investments slowed in the second half of 2022 as sentiment turned conservative amid geopolitical tensions and macroeconomic challenges. The investment mix changed, with mid-sized and small-sized deals gaining a share in the overall deal value. Blockbuster deals, of more than $1 billion, became rare and buyouts slowed too 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 Private Equity Practice, Bain & Company.
Venture capital continued to contribute significantly to deal volume in 2022, but saw a dip in average cheque sizes. PE deal value remained relatively steady, despite lower volumes. A notable deal in media and entertainment was Viacom18’s strategic partnership with Bodhi Tree Systems. In banking it was private equity majors Carlyle Group and Advent picking up a 9.99 per cent stake in YES Bank. Consumer tech and information technology (IT) sectors, which drove around 60 per cent of deal value in 2021, contracted to nearly 30 per cent in 2022. These sectors slowed through the year amidst testing times for new-age business models and challenges in export demand for the IT sectors, in an uncertain global environment. Exits declined to $24 billion from an all-time high of $36 billion in 2021. Traditional sectors dominated exits as well, with the share of exits greater than $100 million expanding to 75 per cent.
The report said that India’s BFSI and fintech sectors have seen a resurgence in interest, with deals worth almost $10 billion in 2022, accounting for 18 per cent of the country’s PE-VC investments. It said that lending is a key theme driving investments across NBFCs and fintechs.
Post-pandemic, India’s healthcare sector has emerged as an attractive bet for investors. With deals worth $4.3 billion in 2022, at approximately 8 per cent of total PE-VC investments, the sector dominated exits, commanding 16 per cent of total exit value. KKR’s public markets exit from Max Healthcare worth $1.6 billion, Everstone's exit from Sahyadri Hospitals and the IPOs of Medanta and Rainbow Hospitals were a few notable exits in the space.
Investment in ESG assets more than doubled, from around 5 per cent over the last few years to 13 per cent of India’s overall PE-VC investments to 2022, witnessing nearly $7.9 billion in deal value. These investments have been largely focused on clean energy and electric mobility accounting for approximately 90 per cent of $19.2 billion invested in ESG between 2018 and 2022.
As funds become cautious in 2023, a shift in Indian deal flow is anticipated due to a drawdown in the number of mega ($1 billion) deals. Mega deal activity, including buyouts, will stay muted for a large part of 2023, said the report.
Rajat Tandon, president of IVCA, said that 2022 witnessed steady growth in healthcare, energy, financial services, banking, and insurance and it is a testament to India being a bright spot in the APAC region.