Despite Covid-19, the Indian private equity (PE) landscape witnessed a record high of $62.2 billion of investment in 2020, on account of Jio Platforms and Reliance Retail deals contributing $26.5 billion, which is around 40% of the total deal value, said a report released by Indian Private Equity & Venture Capital Association (IVCA) and Bain & Company.

A steady momentum in growth equity was witnessed with $10 billion in investments driven by a massive up-surge in late-stage deals, which is more than in all previous years and nearly at par with 2019. In addition, a strong deal volume flow continued with a 5% year over year (YoY) increase amidst a slowdown in the total value of investments (excluding Jio Platforms and Reliance Retail details).

Saudi Arabia’s public investment fund (PIF) made the largest investments worth $3.3 billion in three deals in 2020. The global PE fund KKR made six investments, worth $3 billion. Silverlake invested $2.7 billion including $500 million in Byju’s, apart from Jio and Reliance Retail. GIC, Mubadala and Abu Dhabi Investment Authority (ADIA) invested $2.1 billion each. Excluding Jio Platforms and Reliance Retail deals, Blackstone and GIC were lead contributors at around $1.5 billion each.

The pandemic led to a shift in the type of deals made, with investors focusing on alternate investment strategies such as distressed opportunistic sales and qualified institutional placements (QIPs). The top 15 deals in 2020 constituted around 40% of deal value against 35% in 2019. Sectors like consumer tech and IT & IT enabled services (ITeS) were the largest sectors in 2020 while healthcare saw the highest growth of around 60%, over 2019.

There has been a steady rise in the number of active PE funds in 2020 with global and domestic general partners (GPs) making up the bulk of share at 60%, followed by limited partners(LPs) and corporates. As more funds increase focus towards India, over 70% of investors concur that global PE firms and LPs/Sovereign Wealth Funds (SWFs) investing directly is the biggest competitive threat, said the report.

Fundraising shrunk by 33% from 2019–2020, across several major APAC markets, with China showing steep declines on the back of tightening federal government regulations. India’s share in APAC fundraising however, remains steady at 3%. Plus, investor confidence has stayed up, with India-focused dry powder remaining resilient at $8 billion and over 90% of closed funds at target or oversubscribed.

Exit volume remained buoyant while overall exit value declined by 30% year-on-year in 2020. Year 2020 saw an unprecedented increase in exit returns driven by high multiples on invested capital and the large volume share of consumer tech, IT/ITES, and BFSI exits. The top 10 exits accounted for 60% of exit value, up from 50% in 2019, with BFSI, real estate, and IT/ITES being the largest contributors.

“Exit activity was muted in Q2 and Q3 as owners held onto assets amid a slowdown, but rebounded strongly in Q4 with strong public markets being a key contributor,” said Arpan Sheth, partner, Bain & Company. Year 2020 saw an unprecedented increase in exit returns driven by high multiples on invested capital and the large volume share of consumer tech, IT/ITES, and BFSI exits. We expect continued exit momentum over the next one to two years as portfolios of leading PE investors mature (most portfolios did not reach maturity in 2020) and multiple IPOs planned for the next 12 to 18 months are launched, he added.

About 90% of India-based PE funds concur that their portfolios have largely been able to ride out the Covid pandemic and are focused on efforts to stay ahead of the curve. Additionally, a growing number of funds are focusing on sustainability and environmental, social, and governance (ESG) issues. Covid-19 played a pivotal role in accelerating multiple trends, including the increase of online touchpoints, emergence of direct-to-consumers (D2C) players, adoption of remote working and a focus on healthier living.

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