- VC/start-up investments were the highest in terms of value in January 2022 at US$3.1 billion across 85 deals
- E-commerce was the most active sector in January 2022 with US$1.7 billion in PE/VC investments across 20 deals
Mumbai, 11 February 2022: According to the IVCA-EY monthly PE/VC roundup, January 2022 recorded investments worth US$4.5 billion across 117 deals, including 13 large deals worth US$2.9 billion. Exits recorded US$289 million across 14 deals in January 2022, including 10 strategic exits for which the transaction values were not disclosed.
Vivek Soni, Partner and National Leader Private Equity Services, EY said, “After a record year in 2021, Indian PE/VC investments are off to a good start in January 2022, recording US$4.5 billion in PE/VC investments, a 180% increase over January 2021. This increase has been primarily driven by VC/start-up investments that surged to US$3 billion, representing 68% of the total monthly PC/VC investment received (Jan 2021 - US$700 million; Dec 2021 - US$3.2 billion). January 2022 also recorded 13 large deals (deals of value greater than US$100 million) aggregating US$2.9 billion compared to three large deals worth US$680 million in January 2021.
PE/VC exits in January 2022 recorded US$289 million across 14 deals, 10 out of which were via sale to strategics. While secondary exits have driven most of the disclosed exit value, the aggregate exit value could be higher as most strategic deals have not disclosed transaction values. After a spate of PE-backed IPOs in 2021, there were no PE-backed IPOs in January 2022 on account of increased volatility in the mid-cap and small-cap indices and should the current prevailing market volatility persist, February and March 2022 could be similar.
After a two year decline, fundraising by India focused PE/VC funds has picked-up, with January 2022 recording US$3 billion in fundraises. While majority of the fundraises over the past five years have been sector agnostic, fund raising by technology/ internet dedicated funds as well as clean energy related funds has picked-up in recent years. Mirroring what has been observed in US and European markets in 2021, we expect 2022 to be a record setting year for fund raises by Indian dedicated PE/VC funds. More details on this are available in our spotlight section of this report.
The record setting US$77.1 billion invested by PE/VC funds in 2021 underscores the India investment appetite of alternative asset managers. Playing its part, in the Union Budget 2022, the GoI has announced the setting up of an expert panel to examine "appropriate measures " for scaling up PE/VC investments. With this and other measures (see section on Union Budget 2022), we expect the GoI to actively work towards further smoothening the process of fund deployment and exits by the alternative investment industry across asset classes. While we remain sanguine about the Indian PE/VC sector in the medium to long term, downside risks like rising global inflation, rising crude oil prices, interest rate tightening by the US Fed and impending elections in five key states in India remain key sensitivity factors to consider in the short-term.”
PE/VC investments in January 2022 recorded US$4.5 billion, 2.8 times the value recorded in January 2021(US$1.6 billion) and at par with investments in December 2021(US$4.4 billion). January 2022 recorded 117 deals, 43% higher than January 2021 (82 deals) and 15% higher than December 2021(102 deals). 95% of the total PE/VC investments in January 2022 were pure play investments (excluding real estate and infrastructure sectors) compared to 84% in January 2021 and December 2021.
January 2022 recorded 13 large deals (deals of value greater than US$100 million) aggregating US$2.9 billion compared to three large deals worth US$680 million in January 2021 and 12 deals worth US$2.8 billion in December 2021. The largest deal in January 2022 saw Alpha Wave, Prosus Ventures, QIA, and others invest US$700 million in Swiggy.
By deal type, start-up investments were the highest in terms of value in January 2022 at US$3.1 billion across 85 deals (US$700 million in January 2021 across 57 deals) and accounted for 68% of all PE/VC investments. Growth investments were the second highest with US$689 million invested across 16 deals (US$632 million across 14 deals in January 2021). Buyouts were the lowest in January 2022 at US$133 million across two deals (one deal worth US$150 million in January 2021). PIPE investments recorded US$320 million across four deals (one deal worth US$12 million in January 2021). Credit investments recorded US$300 million across 10 deals (US$121 million across nine deals in January 2021).
From a sector point of view, e-commerce was the top sector in January 2022 with US$1.7 billion in PE/VC investments across 20 deals (US$689 million across 15 deals in January 2021). The second largest sector was technology with US$652 million recorded across 18 deals (US$49 million across nine deals in January 2021) followed by financial services sector that recorded US$390 million across 20 deals (US$146 million across 15 deals).
Spotlight: PE/VC fundraise trend
The last five years witnessed US$44.6 billion raised by India dedicated funds. India dedicated PE/VC fundraising was on an uptrend until 2019. However, on account of the pandemic, fundraising witnessed a slowdown for two years (2020-2021). This trend seems to be reversing with January 2022 recording US$3 billion in fundraises (39% of total funds raised in 2021 of US$7.7 billion).
This is on the back of a global surge in PE/VC fund raising in 2021, during which PE/VC funds raised US$732.6 billion1, an all-time high and a surge of over19 % compared to 2020.
The PE asset class was the largest at US$15.8 billion and accounted for 35% of all the PE/VC fundraises in last five years followed by VC funds at USS$10 billion (23%) and real estate funds at US$6.9 billion (15.6%). Credit plus venture debt funds together raised US$6.3 billion (14%), making credit the fourth largest category. Infrastructure dedicated funds (excluding renewables) raised US$3.1 billion.
From a sectoral allocation perspective, over the last five years, more than 50% (US$23.7 billion) of the funds raised were for sector agnostic deployment followed by real estate sector accounting for 20% (US$9 billion) and technology/internet accounting for 10% (US$4.5 billion). Clean energy has been an emerging theme which has seen US$1.8 billion in fundraise (4% allocation) almost entirely by PE funds.
While sector-agnostic deployment remains the largest investing play across PE, VC, credit, stressed asset and venture debt funds, VC funds saw 24% of the funds being allocated for technology/internet related businesses vs.13% by PE funds. PE funds have allocated 11% (US$1.8 billion) towards clean energy. Within credit funds 45% (US$2 billion) of the funds are dedicated towards the real estate sector.
January 2022 recorded 14 exits worth US$289 million compared to US$342 million recorded across 10 exits in January 2021 and US$825 million across 23 exits in December 2021.
In January 2022, secondary exits were the highest in terms of value worth US$286 million across three deals. Strategic exits were the highest in terms of numbers with 10 deals, however the deal values were undisclosed (one strategic deal in January 2021).
January 2022 recorded total fundraise of US$3 billion across seven funds compared to US$854 million raised in January 2021 across eight funds. The largest fundraise in January 2022 was by HDFC Capital Affordable Real Estate Fund that raised its third fund worth US$1.9 billion for providing long-term, flexible debt capital across the lifecycle of real estate projects (including land, approval and last mile funding) for affordable and mid-income housing.
Union Budget 2022: Implications for PE/VC sector
The report also covers implications of the Union Budget on the PE/VC sector, some of which are listed below:
I. Key policy proposals
- Expert committee to be constituted for suggesting tax and regulatory reforms to make PE/ VC more attractive
- An International Arbitration Centre to be set up for timely settlement of disputes under international jurisprudence
- Services for global capital for sustainable and climate finance in the country to be facilitated in GIFT City
- Government to promote thematic funds for blended finance with the government share limited to 20% and the funds being managed by private fund managers
II. Key tax proposals
- Reduction in surcharge rate in certain cases from 37% to 15%
- Withdrawal of concessional tax rate of 15% on dividend received by an Indian company from a specified foreign company
- Modification and revision of tax demand in insolvency and bankruptcy cases
- Incentives for investments from IFSC
- Applicability of provisions of bonus stripping to units of InvITs/ REITs/ AIFs and securities (stocks and shares)
- Profit-linked tax exemption for eligible start-ups extended by another year