The rise of Private Equity in India in the last decade

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.