Private equity (PE) investors are feeling the pinch of the funding winter and taking a cautious approach to investments as geopolitical uncertainties, tough macro environment and tighter credit markets play spoil sport.

PE investments (other than in real estate) hit a six-year low in calendar year 2023 as big ticket investments dry up.

PE firms invested $29.8 billion across 315 deals in India, as per data sourced from private markets research firm Venture Intelligence, and this was a 33 per cent year-on-year decline in terms of value and 35 per cent fall in deal count from 2022. From 2021 to 2022, PE investments fell 28 per cent.

The investment tally for 2023 is yet to reach the pre-Covid levels of 2018 and 2019 after PE investments hit record highs in 2021 riding on the post-pandemic frenzy.

In the first three months of 2024 (Jan-March), PEs have closed 71 deals aggregating to $5.6 billion compared with 85 deals worth over $6 billion they signed in Jan-March 2023.

Top sectors

Infrastructure, information technology (IT) and internet companies and banking and financial services and insurance (BFSI) emerge as top sectoral picks for PE firms. While 2021 and 2022 saw IT and new-age internet companies find increased favour among PE investors, making up almost 32 per cent of the total investments, the share of the sector fell to 25 per cent in 2023 and further down to 18 per cent in 2024.

PE investors also have a slant towards unlisted enterprises in the Indian market. 95 per cent of PE investments (in terms of deal counts) in the last three years have been in unlisted companies and only 5 per cent toward listed entities. In 2023, 13 deals totalling to around $0.7 billion were in the nature of PE investments in publicly-listed entities. This includes deals through preferential allotments or private placements or acquisition in secondary markets.

Brookfield’s $2-billion investment in telecom infrastructure company ATC India, GIC’s $0.5 billion in Sterlite Power Transmission and Multiples PE’s backing of Svatantra Microfin were top PE deals in 2024.

Gaurav Sharma, head of India investment business at PE firm Investcorp, says, investors have taken a cautious approach, particularly towards the tech sector, following challenges experienced in investments made in 2021 and first half of 2022.

“Despite this, private equity remains a vibrant area of activity. Both globally and for India-focused GPs, there is ample capital available for companies demonstrating strong growth potential and sound unit economics,” he adds.

Analysts note that India-dedicated PE funds have raised record amounts of funds across 2021-22 and there is substantial dry powder for deployment. “PE interest in India stories around technology, healthcare and renewable energy still remains strong. Barring any negative surprise in the elections, PE investments are likely to grow in 2024,” Arun Natarajan, founder and MD, Venture Intelligence, said.

Global PE major Blackstone said recently that it is bullish on the Indian market and will look to invest $2 billion in fresh capital every year for the next five years.