3 minute read 19 Mar 2021
Alternative asset class in India

The rise of Private Equity in India in the last decade

By Vivek Soni

EY India Private Equity Leader

Strategic thinker and leader. More than 22 years of experience in M&A advisory, Private Equity investing, structured finance and running a PE portfolio company. Passionate biker and avid traveler.

3 minute read 19 Mar 2021
Related topics Private equity

2011-2020 was a pivotal decade for the Indian Private Equity/Venture Capital (PE/VC) industry as it grew from a nascent alternative asset class to a mature ecosystem aggregating to a total of US$ 232.4 billion.

2011-2020 saw the Indian PE/VC industry come of age and into the mainstream. This decade saw PE/VC investments grow at a CAGR of 19% from a base of US$ 8.4 billion in 2010 to US$ 47.6 billion in 2020 and spread its wings across all investment classes and strategies. The cumulative value of PE/VC investments between 2011-2020 totaled US$ 232.4 billion which is more than twice the value recorded in the preceding decade. This decade also saw many structural shifts in the Indian PE/VC industry including changes in the investor mix, deal type, deal size, and sectors.

India’s growing attractiveness as an investment destination for PE/VC investments has been acknowledge by global LP’s as well. The Global Limited Partners Survey conducted every year by EMPEA has consistently ranked India among the top three most-attractive emerging market destinations for LPs globally to make GP investments in the last five years a significant improvement from 8th rank in 2014. This is further corroborated by the record PE/VC investments made in India in 2020 despite the strong headwinds caused by the COVID-19 pandemic.

As India’s economic recovery gathers steam and becomes broad based, with most sectors (other than travel, HoReCa, etc.) returning to / trending towards their pre-COVID levels, the outlook for PE/VC investments in 2021 is very bright.
Vivek Soni
EY India Private Equity Leader

The decade ended on a record high of US$47.6 billion in PE/VC investments in 2020 despite the sharp downturn in investment sentiment due to the COVID-19 pandemic. This was largely on account of a flurry of mega investments in Jio Platforms and Reliance Retail of US$17.3 billion that accounted for 36% of all PE/VC investments during the year. However, the investment activity rebounded in the fourth quarter of 2020 on the back of large stimulus programs by global central banks and hopes of return to normalcy with the successful development of a vaccine for COVID-19. Nonetheless, the pandemic has led to a rapid adoption of technology across companies and governments alike, as well as, brought into focus the need for investments into the life sciences sector. Sectors like edtech, healthcare, pharmaceuticals, technology, e-commerce gained prominence and are expected to be among the leadings sectors for investments in the coming decade.

Emerging out of the global financial crisis (GFC) exits was one of the biggest pain points for the Indian PE/VC industry. Exits remained subdued in the first half of the decade accounting for 23% of all exits by value. Post 2015 there was a pickup in exit activity with the last five years accounting for 77% of exits by value, despite a lackluster performance in 2020 that was severely impacted by the pandemic. The exit environment in India in the earlier years was marred by issues of corporate governance, contract enforcement and lack of a vibrant ecosystem for secondary and strategic deals. However, with the growing attractiveness of India in the latter half of the decade and the entry of a new class of investors like pension funds, sovereign wealth funds, specialized secondary funds, global buyout funds and strategic investors brought in new pools of capital providing exit opportunities for early investors. Further, multi-billion dollar exits like the Flipkart-Walmart strategic exit and SBI Cards IPO by Carlyle have bolstered the confidence of investors.

Large corporates acquiring start-ups to augment their e-commerce and technology capabilities is expected to be one of the major drivers of PE/VC exits in the coming decade. Reliance Group’s acquisition of Netmeds (an online pharmacy platform) in 2020 and Tata Group’s US$ 1.2 billion acquisition (announced) of Bigbasket in 2021 are indicative of this emerging trend.

Summary

The global macro has thrust the India investment opportunity in a favourable position and most PE/VC investors are inclined towards investing increased amounts in larger deals. While concerns on the possibility of a second wave and the complexity of the vaccine rollout persist, most Indian corporates as well as investors seem to have a positive view.

About this article

By Vivek Soni

EY India Private Equity Leader

Strategic thinker and leader. More than 22 years of experience in M&A advisory, Private Equity investing, structured finance and running a PE portfolio company. Passionate biker and avid traveler.

Related topics Private equity