In India, private equity and venture capital (PE-VC) investments dropped by 12% in 2022 compared to 2021 due to the challenging macroeconomic conditions, but the future remains promising, according to a report.
The India Private Equity report 2023 by Bain & Company and IVCA said, “2022 was a year of recalibration for PE-VC investments in India, declining from the record highs of $70 billion in 2021 to $62 billion in 2022 amid global headwinds.”
However, it’s important to note that since 2020, PE-VC investments in India have reached $60 billion.
India’s share of the Asia-Pacific grew from 15% to 20% in a single year as China + 1 tailwinds and India’s macro-robustness made the country a bright spot for investment amid a slowdown in capital flow in the region, according to the report.
As compared to other major economies, Indian PE-VC activity witnessed a tale of two halves through the year, moving from record deal-making of $40 billion in the first half to a decline in deal value to $21 billion in the second half, which was primarily caused by a decrease in VC cheque sizes and a change in the deal mix, the report found.
Due to strong domestic demand, traditional sectors, including manufacturing, BFSI, energy, and healthcare, experienced growth of almost 50% in 2022. The investment value in the consumer tech and IT services industries declined by 60% to 70%.
“2022 was a blockbuster year for healthcare exits, and it shows in the fact that the sector saw a 16% share in India’s total PE exits at $3.5B, against only 8% share of investments. The sector is seeing continued potential upside with a low beta, with headroom for growth with large players driving scale through greenfield expansion to Tier 2 cities, brownfield expansion, and consolidation initiatives,” said Sriwatsan Krishnan, Partner, PE Practice, Bain & Company.
The macro-environment may be uncertain, but the Indian economy’s long-term outlook remains favorable. According to the report, leading global and Indian investors boosted their investments in India in 2022 due to larger fund-raises, increased India allocations, and faster closings riding on the momentum of 2021.
According to the report, private equity has increased in India, particularly during the past ten years. More than 800 active investors joined the investor base, which increased from 200 to more than 800 overall. Pools of available capital have also grown and diversified, and investments in India have accelerated.
The research observed that, despite having an abundance of dry powder, investment approaches had changed due to the year’s changing mindset. Investors are concentrating on fewer, higher-quality assets and driving value creation within their portfolios while trying to achieve profitability.