India sees $62 bn in PE funding in 2020

Last year, the Covid-19 pandemic dealt a major financial blow to many businesses across sectors. But that didn’t stop investors from cherry-picking opportunities in the India growth story and funding companies with strong fundamentals and growth potential. The country witnessed total deal value in private equity (PE) investments touching $62.2 billion in 2020, according to Bain & Company’s ‘India Private Equity Report 2021’, which was launched on Wednesday.

The report, released in collaboration with the Indian Private Equity & Venture Capital Association, said that Reliance Industries Ltd’s technology and digital services arm Jio Platforms and its retail unit Reliance Retail Ventures raised total funding of $26.5 billion, which was about 40% of the total deal value in PE last year.

“Despite Covid-19, we have seen a few investment themes continue from prior years. Strong deal volume flow continued with a 5% year over year increase. Growth equity momentum held steady with $10 billion in investments, more than in all previous years and nearly at par with 2019,” said Sriwatsan Krishnan, partner and leader at Bain India’s private equity practice, adding, “There was a moderation in cheque sizes as average deal size declined by 25% over 2019.”

In terms of sector-wise activity, healthcare witnessed a surge with big-ticket deals in pharmaceuticals manufacturing and distribution and API (active pharmaceutical ingredient) development. However, BFSI investment value experienced a 60% decrease due to uncertainty over NPAs (non-performing assets), the Reserve Bank of India-imposed bank moratorium, and the impact of Covid-19 on lending, added Krishnan.

The report pointed out that in absolute terms, consumer tech and IT/ITeS were the largest sectors in terms of investment value last year. Consumer tech investments were driven by accelerated growth in digital channels and a spike in user adoption of on-demand, at-home cross-tech services. This led to a deal surge in edtech, fintech, verticalised e-commerce, and foodtech, with big-ticket investments in Byju’s, Zomato, and FirstCry.

However, on the flip side, overall exit value declined by 30% year-on-year in 2020.

“Exit activity was muted in Q2 and Q3 but rebounded strongly in Q4, with strong public markets being a key contributor. Last year saw an unprecedented rise in multiples driven by high-return generating consumer tech and BFSI exits. We expect continued exit momentum over the next one to two years as portfolios of leading PE investors mature and multiple IPOs planned for the next 12-18 months are launched,” said Arpan Sheth, senior partner and leader, private equity and alternative investor practice, Bain & Company India, in a statement.

Highlighting the impact of Covid-19 and the outlook for 2021, the report further added that almost 90% of India-based PE funds concur that portfolios have largely been able to ride out the storm and are focussed on efforts to stay ahead of the curve. Additionally, a growing number of funds are focussing on sustainability and environmental, social, and governance (ESG) issues.

Covid-19 played a pivotal role in accelerating multiple trends, including the increase of online touch points, emergence of direct-to-consumers (D2C) players, adoption of remote working and a focus on healthier living. In addition, there are key macro movements at play that will continue to shape the industry going forward. From an investment perspective, sectors such as IT & ITeS, consumer technology, and healthcare are poised to capitalise and BFSI is set to recover, the report noted.