Investments in India’s private equity and venture capital markets surpassed the $45-billionmark last year, making it the best year for the market in a decade and securing its position as the second-largest deal market in the Asia-Pacific (APAC), behind only China.
India’s position in the APAC market only grew stronger over the course of last year. This is partly due to a slowdown across the region, particularly in China where tightened government restrictions on private equity investments have dampened deal activity. China remained the top market for investments, although India’s challenge to its position at the top is intensifying.
Bain & Company reports that there were more than 1,000 deals last year, a significant number of which were large deals in excess of $100 million. As a result, the overall sum of investments registered a 70% jump from 2018 and was more than 100% higher than the average of the previous half-decade.
The usual suspects such as the banking, financial services and insurance (BFSI) sector as well as consumer technology dominated the investment scenario. The former has steadily been among the numbers, driven by a number of deals in the banking sector as well as a growing non-banking financial company (NBFC) market.
The overall value of the BFSI segment grew to more than $8 billion last year, accounting for 35% of total M&A-related investments in India. The consumer tech segment, meanwhile, grew to nearly $8 billion, driven by the rapid progression of Industry 4.0 tech across the country.
As businesses look to implement digital transformation strategies, Bain reports that cloud technology has emerged as a particularly strong market for investments, given its role as a gateway to other Industry 4.0 tech such as data analytics, artificial intelligence and machine learning.
The biggest driver of consumer tech growth, meanwhile, is India’s booming financial technology (fintech) market. Big Four accounting and advisory firm EY reported last year that the Indian market was the fastest in the world when it comes to fintech adoption.
E-commerce also had a large part to play in consumer tech investments last year, the real estate and infrastructure sectors were strong performers from a growth perspective, as well as the telecom, IT and ITES sectors in India.
The only downside uncovered is a fall in exit value, which the authors attribute to market unpredictability and other macroeconomic conditions. The Covid-19 crisis will also no doubt have its effect on deals in the coming months and years.
Way Forward/What Next:
From an investment perspective, we will likely see a short-term dip in investment activity with Covid-19, as already evidenced globally. However, this imminent price correction across the board will present an investment opportunity.
Investors need to triage their portfolio and take actions to adapt to the changes in the economy which includes taking immediate actions to ensure business continuity and plan for value creation to retool their businesses for the future. The market disruption caused by Covid-19 could lead to growth in select pockets such as e-commerce, enterprise technology/SaaS, healthcare, on-demand services
Author: Sachin Matta