Press release

16 Jun 2022 Mumbai, IN

Y-o-Y PE/VC investments in May 2022 increased by 42% to US$5.3 billion, due to large growth investments: IVCA-EY report

Mumbai, 15 May 2022, Y-o-Y PE/ VC investments in May 2022 increased by 42% to US$5.3 billion, due to large growth investments according to the IVCA-EY report.

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Related topics Private equity
  • Growth investments were the highest in May 2022 at US$2.0 billion, 54% increase y-o-y
  • Real estate was the top sector with US$938 million in PE/ VC investments
Mumbai, 15 May 2022: According to the IVCA-EY monthly PE/VC roundup, May 2022 recorded investments worth US$5.3 billion across 109 deals, including 14 large deals worth US$3.9 billion. Exits recorded US$400 million across 22 deals in May 2022, including five PE-backed IPOs with US$301 million in exit proceeds.
 
Vivek Soni, Partner and National Leader Private Equity Services, EY said, “ May 2022 recorded US$5.3 billion in PE/ VC investments, 42% higher than May 2021 and 29% lower than April 2022. Growth investments continued to receive the largest share of inflows and were up 30% y-o-y.

Despite the liquidity tightening by the US and Indian Central Banks, the flow of PE/ VC capital into India has continued with year-to-date investments worth US$28.8 billion, 35% higher y-o-y. The large amounts of dry powder amassed by global PE/ VC funds are finding their way into India which remains one of the few bright spots of growth.
 
Real estate and infrastructure sector investments took the top spot in May 2022, recording US$1.7 billion in investments, after having been the laggard for many months as PE/ VC funds focused capital allocation towards high growth sectors of e-commerce and technology throughout 2021.
 
The financial services sector with US$5.3 billion in investments till date, is the top sector for PE/VC investors, a change from 2021 when e-commerce and technology were the sectors that saw maximum PE/VC investment activity. This has been driven by large investments in the fintech and payments space which account for 59% by value and 75% by volume of all deals in the sector in 2022. Our spotlight section covers the trends in this sector in more detail.
 
In the absence of large strategic and secondary deals, PE/ VC exits remained subdued at US$400 million. However, PE-backed IPOs made a comeback with 5 IPOs in May 2022. 
 
While overall macro remains positive, uncertainty abounds. Monetary policy tightening continues to remain a key sensitivity affecting capital flows into India. Other downside risks that can impact growth expectations, business risk premium and PE/ VC investment activity include rising inflation, spike in oil prices, dollar appreciation vs Indian Rupee, rising Indian interest rates and any potential resurgence in COVID 19 in the country.”
 
Investments
 
PE/ VC investments in May 2022 were ~US$5.3 billion, 42% higher than the value recorded in May 2021 (US$3.8 billion) and 29% lower than investments in April 2022 (US$7.5 billion). May 2022 recorded 109 deals, 65% higher than May 2021 (66 deals) and 12% lower than deals in April 2022 (117 deals). 68% of the total PE/ VC investments in May 2022 were pure-play investments (excluding real estate and infrastructure sectors) compared to 67% in May 2021 and 79% in April 2022.
 
May 2022 recorded 14 large deals (deals of value greater than or equal to US$100 million) aggregating US$3.9 billion, compared to 11 large deals worth US$2.9 billion in May 2021 and 18 deals worth US$5.9 billion in April 2022. The largest deal in May 2022 saw Adani Group controlled Mumbai International Airport raise $750 million in debt from Apollo Global, followed by Bain Capital and Ivanhoe Cambridge (a unit of CDPQ) announcing an investment of US$667 million in a JV with Lodha group to setup Lodha Logistics Platform, a platform of logistics and light industrial parks and in-city fulfillment centres.
 
By deal type, growth deals received maximum PE/ VC investments in May 2022 at US$2.0 billion across 19 deals (US$1.3 billion in May 2021 across 12 deals). Start-up investments were the second highest with US$1.6 billion invested across 73 deals (US$1.2 billion across 43 deals in May 2021). Buyouts recorded US$294 million across three deals (seven deals worth US$1.2 billion in May 2021). Credit investments recorded US$1.0 billion across six deals (one deal worth US$3 million in May 2021). PIPE investments recorded US$436 million across eight deals (three deals worth US$27 million in May 2021).
 
From a sector point of view, real estate was the top sector in May 2022 with US$938 million in PE/ VC investments across seven deals (US$997 million across seven deals in May 2021), followed by the infrastructure sector with one US$750 million deal. The real estate and infrastructure sectors attained the top spot in monthly PE/VC investments by value after a long time. The third-largest sector was education with US$649 million recorded across ten deals (US$33 million across five deals in May 2021), primarily propped up by the large US$600 million investment in ALLEN Career Institute, a test preparation services company, by Bodhi Tree Systems.
 
Spotlight: Financial services sector investment trends
 
The financial services sector was the largest in terms of PE/VC investments over the previous decade. In the past 15 years, the sector has received over US$60 billion in investments, 75% of which has come in the past five years. 
 
PE/VC investments in 2021 were the highest ever for the sector at US$11.7 billion with a 152% increase y-o-y. Also, it is one of the largest sectors in terms of the number of deals with over 950 deals in the past five years.
 
The financial services sector has been one of the most versatile sectors for alternative investments, providing a good proxy of the long-term India growth story for investors to play on. This sector provides investors varied options across business models ranging from pure-play banks to specialized non-banking finance companies (NBFCs), small finance banks, online credit platforms, insurance companies, and payment solution companies. Further, with technology becoming a key component of the sector, many new tech-enabled business models have emerged that are helping increase financial inclusion, increasing the addressable market for the financial services sector.
 
While NBFC was the most preferred sub-sector for PE/VC investments in the first half of the last decade, of late the balance has shifted heavily on the side of fintech and payments. Investments in fintech and payments were at an all-time high of US$7.4 billion and account for 63% of the investments in the financial services sector in 2021 vs. an average of 30% in the previous years. 
 
As a result, the trend in financial services sector investments has shifted from providing growth capital for lending institutions to start-up funding of new-age tech-enabled business models that are disrupting the traditional ways of providing financial services.
 
This trend is expected to get stronger as more and more PE/VC funds back financial services companies that leverage technology to do business, solving real-world problems revolving around payments and distribution, underwriting and collection of credit. 
 
There has been a proliferation of new-age companies in the buy now pay later (BNPL), neo banking, online lending, and DeFi space that is seeing increasing number of dollar investments pouring in.
 
While growing prominence of tech-enabled business, a traditional business that is seeing some traction is asset/wealth management which has received over US$2 billion in investments in the past two years, greater than all investments received by the segment in prior years. With the growing financialization of Indian household savings, increasing equity market participation, and growing affluence among new-age entrepreneurs, the wealth/asset management space is expected to grow significantly in the coming years and PE/VC funds are positioning themselves to capture a greater share of this high growth segment.
 
Exits
 
May 2022 recorded 22 exits worth US$400 million compared to US$12 billion recorded across 17 exits in May 2021 and US$2.8 billion across 27 exits in April 2022. May 2021 had recorded the largest technology sector exit in India with CPPIB and Partners Group exiting Global Logic for US$8.6 billion.
 
In May 2022, PE-backed IPOs made a comeback with five PE-backed IPOs in which PE/ VC investors garnered US$301 million in the offer-for-sale (OFS) component. Open market exits recorded US$93 million across four deals (US$842 million across five deals in May 2021). Strategic exits were the highest in terms of numbers with nine deals, however, the deal values were undisclosed (seven strategic deals worth US$10.4 billion in May 2021).
 
Fundraise

May 2022 recorded a total fundraise of US$668 million across five funds compared to US$154 million raised in May 2021 by three funds. The largest fundraise in May 2022 was by Jungle Ventures which raised its fourth India dedicated fund at US$600 million.

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