How PE/VC industry in 2023 navigated challenging times with resilience

PE/VC investments recorded a second consecutive year of decline in 2023. The dollar value of cumulative PE/VC investments fell by 11% y-o-y to $49.8 billion, primarily due to a 33% decline in overall deal volume – of which the primary contributor was the startup segment, which saw a sharp fall of 42% y-o-y in the number of deals and a 53% drop in dollar value of investments. As the share of startup in PE/VC investments fell to 17%, it also lost the title of being the largest segment, which it held since 2021. In 2023, we saw a trend similar to 2022 wherein the first half of the year saw the heightened activities (US$27.5 billion) which subsequently declined in the second half (US$22.2 billion). The PE/VC investments in infrastructure and real estate asset class recorded a y-o-y growth of 23% in 2023 (US$19.6 billion across 112 deals), and this helped to offset the significant fall in pure play PE investments which saw a 25% decline y-o-y. 

The year 2023 observed a prominent uptrend across some sectors. Infrastructure and real estate emerged as the leading sectors. Real estate, healthcare and industrial products recorded all-time high investments with an impressive growth of 15%, 97%, and an 299% respectively. However, the traditionally favored sectors by PE such as financial services, technology and e-commerce faced a downturn recording a de-growth of 39%, 39% and 55% respectively. This year, 10 sectors recorded over US$1 billion investments (vs. 13 sectors in the previous year). 

The bid-ask spread between buyers and sellers on valuation multiples was one of the major hurdles, impacting the number of transactions closed. However, India’s growth story, global competitiveness, and elevated levels of dry powder are expected to help to narrow the gap between investor valuations and seller expectation and the long-term outlook on resilient India’s PE/VC ecosystem remains positive. Despite the global headwinds, the underlying strength of India's economy, along with the ongoing reforms, position the country as a beacon of opportunity for investors seeking long-term value creation.