India saw PE-VC investments worth $61.6 Bn in 2022, but deal activity to be muted in 2023

Despite global headwinds, private equity and venture capital investments in India crossed $60 billion for the third consecutive year. India ended 2022 with $61.6 billion in PE-VC investments across 2,000+ deals, according to Bain & Company’s ‘India Private Equity Report 2023’, released jointly with the Indian Venture and Alternate Capital Association.

India’s share of investments in the Asia-Pacific region also went up from ~15 per cent in 2021 to ~20 per cent in 2022, as global investors increasingly focused on a ‘China+1’ strategy. “India’s macro robustness made it a bright spot for investing, amidst decelerating capital flow in the region,” per the report. 

Arpan Sheth, Partner at Bain & Company, further shared, “Long-term prospects of the Indian market continue to be bullish, in spite of the near-term global slowdown. Robust fundamentals of the Indian economy make it an attractive destination for private equity. India has also continued to increase its share of PE-VC investments in the Asia-Pacific region, with $1 of every $5 invested in the region being invested in Indian assets.”

Deal flows in traditional sectors, including BFSI, healthcare, energy, and manufacturing, increased by an impressive 50 per cent to ~$28 billion, riding on a strong domestic consumer sentiment. BFSI and fintech recorded deals worth $10 billion in 2022, accounting for 18 per cent of India’s total PE-VC investments. 

Healthcare, too, emerged as an attractive bet for investors post the pandemic. It recorded deals worth $4.3 billion in 2022, accounting for nearly 8 per cent of the country’s total PE-VC investments. The sector also dominated exits during the year. KKR’s $1.6 billion public market exit from Max Healthcare, Everstone's exit from Sahyadri Hospitals, and the IPOs of Medanta and Rainbow Hospitals were among the marquee exit events in the industry. 

Traditional sectors, in fact, dominated overall exits during the year, with its share of exits greater than $100 million expanding to 75 per cent. Total exits in 2022, however, declined to $24 billion from a record high of $36 billion in 2021, according to the report.

ESG, meanwhile, emerged as a “breakout theme in 2022”. PE-VC investments in ESG assets, including clean energy and EVs, more than doubled from ~5 per cent in the last few years to 13 per cent, amounting to $7.9 billion in deal value. “Clean energy,  especially solar, saw strong deal activity in 2022 with investments of $5 billion, supported by increasing cost competitiveness of solar against thermal energy, regulatory tailwinds for renewables, and an acceleration in the climate agenda,” according to the findings. 

Rajat Tandon, President of IVCA, explained, “2022 witnessed steady growth in healthcare, energy, financial services, banking and insurance which is a testament to India still being a bright spot in the APAC region. PE players remain positive in the long term as business fundamentals continue to evolve with improved unit economics in these core sectors and investors back higher quality assets within their portfolios with a dedicated push towards profitability.”  

However, sectors such as consumer tech and IT/ITeS, which drove around 60 per cent of deal value in 2021, saw a decline to ~30 per cent in 2022. “These sectors slowed through the year amidst testing times for new-age business models and challenges in export demand for the IT sectors, in an uncertain global environment,” the report stated.

Towards the second half of 2022, as geopolitical tensions continued to rise, mid-sized and  small-sized deals gained momentum, while the large $1-billion-plus deals kind of petered out. There was some crunch in the credit markets as well.

In the short term, a shift in deal flow is anticipated, with a drop in the number of mega ($1B+) deals, and an increased focus on profitability for portfolio companies of funds. Bain and IVCA also expect mega-deal activity, including buyouts, to stay muted for a large part of 2023.

“We expect the short-term softness to continue with growth uncertainties, tight credit markets in the US, and tempered public market valuations (and implied private valuations), leading to delays in deal closures with limited deployment pressure on investors,” Sriwatsan Krishnan, Partner and Leader of the Private Equity Practice at Bain & Company, said in a statement.

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