IVCA-EY report in its new report named ‘PE/PV Agenda: India Trend Book’ said, “India has received US$232.4 billion from 2011 to 2022.

IVCA-EY in its new report released on Thursday said, “The cumulative value of PE/VC investments between 2011-2020 totaled US$232.4 billion which is more than twice the value recorded in the preceding decade. This decade also saw many structural shifts in the Indian PE/VC industry including changes in the investor mix, deal type, deal size and sectors.”

Speaking on the report, Renuka Ramnath, Chairperson, IVCA & Founder, Managing Director & CEO, Multiples Alternate Asset Management Pvt. Ltd, said, “Congratulations to EY to launch the annual PE/VC Trend Book 2021. 2020 was a defining year that saw the impact of the pandemic, digital acceleration, and spotlight on policies on pharma, healthcare, infrastructure, and manufacturing.”

“Notwithstanding the challenges thrown up by the pandemic, the Indian PE/VC ecosystem has only become more resilient and better at finding newer opportunities bringing much-needed capital into the country; it is the single largest source of much-needed FDI. During this past decade, $ value of Indian PE/VC investments grew from $8.4 billion in 2010 to $47.5 billion in 2020, a CAGR of ~19%,” She added.

“PE/VC backed companies are helping the cause of nation-building by bringing in new business models, creating new jobs, backing entrepreneurs, and helping fund financial inclusion, better infrastructure, increase renewable energy and promote capital efficiency in the Indian economy.  I thank the EY team for putting together this report and for their detailed work. I thank all of you for your support and look forward to your continued participation in IVCA initiatives which is working tirelessly to strengthen the Indian private equity and venture capital ecosystem,” Renuka added.

Commenting on the released report, Vivek Soni, Partner and National Leader for Private Equity Services, said, “2011-2020 was a pivotal decade for the Indian PE/VC industry during which the industry grew from a nascent asset class to a mature ecosystem, crossing many significant milestones. In this decade, PE/VC investments grew at a CAGR of 19% aggregating to a total of US$232.4 billion. A major portion of these investments came in the last four years, accounting for 68% of all the PE/VC investments made during the decade, growing at a CAGR of 31%.”

“A large part of the funds invested were sourced from globally fungible pools of capital managed by international GP’s as only US$58.2 billion of India dedicated funds were raised between 2011-2020, which is approximately 25% of the PE/VC investments of US$232.4 billion invested during this period. Looking ahead to the next decade, as both the sector and the Indian economy grow, we believe more India dedicated fundraises will take place with many international funds planning a dedicated India investment strategy. Furthermore, in the coming decade, we foresee the emergence of many new first-time funds as seasoned investors with international franchises spin-off and turn entrepreneur,” Vivek added.

While the decade has gone by as a mixed bag for PE/VC exits, the Flipkart-Walmart deal was a turning point for the Indian PE/VC industry, especially the start-up ecosystem.

“Growing on the strong foundation laid in the previous decade, the Indian PE/VC industry is expected to grow materially going forward as large global LP’s increase their allocations towards the emerging markets in general and India in particular. Additional factors like a ‘reform oriented’ government, implementation of business-friendly policies, the emergence of new investment structures like InvITs, REITS, and SPACs, as well as a thriving start-up ecosystem, are expected to enhance India’s status as an ‘attractive destination for PE/VC capital, across strategies – (start-up, growth, buyouts, PIPE) and asset classes (PE, Real Estate, Infrastructure, Credit),” he added.

“Notwithstanding the sharp downturn in investment sentiment due to the COVID-19 pandemic, the year ended on a record high of US$47.6 billion in PE/VC investments in 2020. This was largely because of mega investments in Jio Platforms and Reliance Retail of US$17.3 billion. Without these investments, PE/VC investments in 2020 would have been lower by 36% on a y-o-y basis,” the report said.

“The PE/VC investment activity rebounded in the fourth quarter of 2020 on the back of large stimulus programs by global central banks and hopes of a return to normalcy with the successful development of vaccines for COVID-19, the pandemic has caused a significant shift in PE/VC investments from the traditionally ‘in favor’ sectors,” it added.

T”he pandemic has led to the rapid adoption of technology across companies and governments alike, as well as, brought into focus the need for investments in the life sciences sector. Sectors like edtech, life sciences, technology, and some sub-sectors of financial services have demonstrated resilience to the disruptions caused by the pandemic and ensuing lockdowns and thus gained prominence over the traditionally favorite sectors for PE/VC investors like infrastructure, real estate, consumer, and retail and sub-sectors of financial services like lending,” the report said.

“Going forward into the new decade, we expect these new favorites to continue attracting higher than before PE/VC investments. In this decade, the PE/VC investment mix also changed significantly, progressing from primarily minority growth investments into one in which large buyouts have become a significant part of the overall PE/VC investment pie (by dollar value),” IVCA-EY in its report added.

Key trends that emerged over the decade:

• Buyouts emerged as a key PE investment strategy accounting for 23% of total PE/VC investments during the decade at US$54 billion. Buyout investments (by dollar value) grew 11-fold between 2011 and 2020.

• Deals grew larger and more complex. Share of large deals (greater than US$100 million) in total investments increased from 40% in 2011 to 80% in 2020. Moreover, the last couple of years saw a rise in mega deals (value US$500 million and higher). The last two years recorded 45 mega deals compared to 35 such deals in the preceding eight years combined.

• New investment structures like InvITs and REITs provided an additional fillip to PE/VC investments into the infrastructure and real estate asset classes. Almost 24% of all PE/VC investments by value in infrastructure in the past decade have been through the InvIT structures all of which happened in the past two years.

• Pension funds and sovereign wealth funds have entered the Indian PE/VC market in a big way, directly investing large sums of long-term capital. Investments by these funds increased from US$1 billion in 2011 to US$11.1 billion in 2020¾ an 11-fold increase over 10 years. Between 2011-2020, these funds have directly invested US$50.7 billion in India, accounting for ~22% of total PE/VC investments.

• Financial services, infrastructure, real estate, e-commerce, and technology have been the most preferred sectors for PE/VC investments, accounting for 60-70% of all PE/VC investments during the decade.

• The Indian start-up ecosystem has developed into one of the most vibrant globally. The number of start-up investments has grown more than three-fold from 159 in 2011 to 557 in 2020. According to a report by NASSCOM, with 38 unicorns as of 2020, India has the third-largest number of unicorns globally after the US and China.

India’s growing attractiveness as an investment destination for PE/VC investments has been acknowledged by global LPs as well.

The Global Limited Partners Survey conducted every year by EMPEA has in the last five years, consistently ranked India amongst the top three most-attractive emerging market destinations to make GP investments, a significant improvement from 8th rank in 2014.

This is further underlined by the record PE/VC investments made in India in 2020 despite the strong headwinds caused by the pandemic.

Outlook for PE/VC:

PE/VC investments in 2021 have gotten off to a slow start, with Jan-Feb 2021 investments being 11% lesser than Jan-Feb 2020 and almost 66% lesser than the previous two-month period Nov-Dec 2020.

“At a macro level, the mega liquidity unleashed by US and European central banks, low yields and the declining dollar is forcing large LPs to increase their allocations towards higher yield generating and growing emerging markets, of which India will be a beneficiary,” the report added.

Commenting on the global market market and Midsize funds, it said, “The new US administration in place, markets are hoping for less trade war rhetoric and a reduction in hostilities. Brexit too is no longer unknown and with successful vaccine announcements, most of the global uncertainties that impacted markets in 2020 appear to be on the decline.”

“The deal pipeline remains robust and investment teams of most large and medium-sized PE funds are working flat out diligencing and negotiating multiple deals,” the report added.

Further adding to the report, IVCA-EY said, “In our view, the global macro has thrust the India investment opportunity in a favorable position and most PE/VC investors are inclined towards investing increased amounts in larger deals. While there are still concerns on the possibility of a second wave, new mutant virus strains, and the complexity of the vaccine rollout, most Indian corporates, as well as investors, seem to have a positive view.”

Following factors that will play an important role in driving PE/VC investments:

• As global corporations look to mitigate risks by diversifying their supply chains, many new opportunities will open up for Indian corporates, who will look to raise private equity capital to fund the new investments required.

• The pandemic has widened the chasm between large companies and the smaller ones. Differential access to resources will drive consolidation in most Indian sectors that have a long unorganized tail and create new and larger opportunities for both growth and buyout PE investors.

• The trend of infrastructure and real estate investors coming into structures like InvITs and REITs is expected to further strengthen in the coming years with many companies/government entities making plans to monetize assets through InvITs and REITs. As per some news reports, already InvITs worth almost US$5 billion are in the pipeline.

• The tectonic shifts in India’s digitization unleashed by the pandemic coupled with the sentiment boost driven by mega-successful IPOs / listings of PE-backed tech companies in the US are expected to keep Indian VC investors busy as new, hyper scalable business models emerge and homegrown technology companies looking to list in the public markets.

• To keep up with these fast-changing times, large companies and diversified conglomerates will review their product/business portfolios and sharpen their focus by carving out and selling business divisions/ companies that are no longer considered core, creating more opportunities for buyout funds.

PE/VC Exits:

Exits have gotten off to a decent start, with Jan-Feb 2021 recording exits 176% higher than Jan-Feb 2020 and 9% higher than the previous two-month period Nov-Dec 2020.

Going forward, large corporates acquiring start-ups to augment their e-commerce and technology capabilities is expected to be one of the major trends influencing PE/VC exits in the coming years.

Reliance Group’s acquisition of Netmeds (an online pharmacy platform) in 2020 and Tata Group’s US$1.2 billion acquisition (announced) of Bigbasket in 2021 are indicative of this emerging trend. With the recovery in mid-cap and small-cap indices, we expect a busy IPO calendar by PE/VC-backed companies. Open market exits remain strong and secondary exits are expected to recover sharply in 2021.

https://techgraph.co/business/ivca-ey-report-india-received-232-4-bn-in-pe-vc-investments-2011-20/amp/