New Delhi
Even as India’s growth dynamics propel the world’s 5 largest economy to the radar screen of global investors, it’s a different story on the home turf with private equity/venture capital (PE/VC) investments which have witnessed a year-on-year decline of 25 per cent in 2023 till date, underlined by the decline in PE/VC investments in October 2023 at $3.4 billion which is 3 per cent lower than October 2022, finds a report by Ernst & Young and Indian Private Equity & Venture Capital Association (IVCA). Although the Indian consumption story continues to remain strong, the increase in uncertainty on account of global factors and impending state and central elections in India seem to be slowing down progress in deal pipeline activity. While there have been no large, billion dollar plus deals in the past 2 months, the IVCA-EY report suggests that a few deals which are in play, if delayed, could lead to a down year for PE/VC investments, specifically in the pure play PE segment. “We remain cautiously optimistic,” says the IVCA-EY report.
The October Dealtracker by Grant Thornton Bharat also factors in the geopolitical impact in its assessment of PE/VC deals and investments. October 2023, says the report, recorded 122 deals valued at $2.2 billion, which was the third-highest monthly deal volumes in 2023 but second-lowest in terms of deal values, due to absence of big-ticket transactions. Last month also marked the lowest M&A activity for the year, with only 21 deals valued at $235 million. In contrast, PE activity, accounting for 101 deals worth $1.9 billion, faired better, the Grant Thornton analysis says. Shanthi Vijetha Partner, Grant Thornton Bharat expresses concern over the Russia-Ukraine war in 2022 being followed by the Israel-Hamas conflict, potentially leading to challenges such as rising interest rates, geopolitical instability and a possible slowdown or recession. “These will eventually result in tightened investor pockets and decline in cross-border deals,” says Vijetha.
While the broader markets have shown signs of recovery, the EY/IVCA report flags geopolitical tension and conflict in the Middle East as adding to global uncertainty even as inflation continues to remain the biggest pain point across economies, with the overriding risk of any sustained spike in crude oil prices having a detrimental impact on inflation around the world in general and the Indian economy in particular. The trend is underlined by the decline in PE/VC investments in October 2023 at $3.4 billion, 3 per cent lower than October 2022, when PE/VC investments reached $3.5 billion and 19 per cent lower than the September 2023 investments of $4.2 billion. “The number of deals in October at 70, was lower by 13 per cent yoy, compared to October 2022 which saw 80 deals and down by 16 per cent compared to September 2023 which saw 83 deals,” says Vivek Soni, Partner and National Leader, Private Equity Services, EY.
According to EY-IVCA data, October 2023 recorded 17 exits worth $1.3 billion, compared to $1.6 billion in October 2022 across 15 deals. The largest exit in October 2023 was that of Warburg Pincus and Goldman Sachs from Good Host Spaces Private for $320 million. The month of October 2023 recorded higher total fundraises of $2.4 billion compared to $2.2 billion raised in October 2022 and $1.1 billion in September 2023. The largest in October 2023 was $964 million raised by Edelweiss Alternatives Special Situation Fund. Notably, October 2023 witnessed nine large deals totaling $2.4 billion, reflecting a 9 per cent increase yoy. The largest deal involved Abu Dhabi Investment Authority investing $598 million in Reliance Retail Venture Limited.
The Grant Thornton dealtracker highlights the continuing downward trend in mergers and acquisition space which saw M&A volumes dropping by 19 per cent compared to the previous months, with a significant decrease in values in the last two months, from $3.7 billion in August to $235 million in October, dropping the average ticket size from $141 million in August 2023, to $75 million in Sept 2023 to $11 million this month. However, PE volumes witnessed an upward trend since July’23, increasing from 67 deals to 101 deals in October. PE space dominated the month’s overall activity with 83% volumes and 89% values in the month. October marked the third-highest monthly volumes in 2023 after January and June.
In another upside, startup investments took the lead in October 2023, reaching $1.3 billion, a substantial 109 per cent yoy increase from $608 million invested across 47 deals in October 2022. Even then, the report observes, despite a recovery in capital markets, PE/VC investments, especially in the startup space, are still lacking momentum, the IVCA-EY report notes. While secondary deals are helping shore up PE/VC deal activity, startups continue to struggle to raise primary capital. Growth investments followed with $1.2 billion, a 39 per cent decrease from October 2022 which recorded $2 billion). Buyouts ranked third in October 2023 at $581 million, showing a 9 per cent growth from October 2022 which brought in $534 million. Credit investments amounted to $169 million, marking a 33 per cent decline from October 2022 which garnered $251 million. Private investments in public equity (PIPE) reached $168 million, indicating a 51 per cent increase from $112 million in October 2022, as per the IVCA-EY report.
From a sector point of view, retail and consumer products were the leading sectors in October 2023, driven by a substantial investment from the Abu Dhabi Investment Authority in Reliance Retail Venture, totalling $623 million across five deals. The Dealtracker also notes that start-ups led the overall volumes, followed by e-commerce and IT & ITES, contributing to 70 per cent of the total volumes. Retail and consumer, automotive, IT, and e-commerce sectors led in deal values, constituting 76 per cent of the overall values, shows Grant Thornton data. Following closely, the real estate sector secured the second position, attracting investments amounting to $601 million across six deals.
It is the investments in India’s real estate and infrastructure which have mitigated the 25 per cent yoy decline in pure play PE/VC investments. Over the past six years thus, PE/VC investments in these areas have nearly doubled, comprising 40 per cent of the total PE/VC investments. In 2023, these sectors are poised to achieve a record-high in PE/VC investments. In the infrastructure sector, investments were predominantly directed towards renewables which got 32 per cent and roads and highways which attracted 29 per cent. A significant portion went to commercial real estate which attracted 50 per cent, followed by residential real estate with share of 16 per cent. The report finds a rising interest in logistics, warehousing and data centres which secured the second-largest investment segment in 2023 at $2.4 billion. Data centers are likely to attract investments of $10 billion in the next three years, riding on increased internet access, government digitalization initiatives and adoption of cloud computing, IoT and 5G.