Fund-raising activities likely to fall in next 6-12 months: Crisil study

A decline in fund-raising activities is likely over the next 6-12 months, impacted by the Covid-19 pandemic, which will cut short the strong growth spell PE-VC investments recorded in the recent past, according to a Crisil Research study.

The refrain is it will be downhill from here this fiscal, with some sustained interest in business strategies at lower valuations and sectors mostly unaffected, or benefiting, from the pandemic, it said.

Though the market is sitting on sufficient un-invested capital or dry powder, good investment opportunities are seen difficult to find in the current environment.

As much as 90 per cent of private equity (PE) and venture capital (VC) surveyed envisage a decline in fund-raising, while about 58 per cent surveyed expect investment value to decline over the coming 12 months.

About half of them see a moderate recovery thereafter, while a fifth foresee a healty comback. Two-thirds of investors see mergers and acquisitions (M&As) rising over the next 6-12 months, extending up to the next 1-2 years, and more than three-fourths see a rise in M&A activity in the 1-2 years compared with 2019.

“With exit options limited because of weak capital market and low interest in secondary transactions from other funds, investors would look at M&As as a strategic route to check out. M&A transactions with stronger players would be the more-likely option subject to demand contours and growth opportunities, extent of synergy, and availability of capital for acquisition,” Rahul Prithiani, director at Crisil Research said.

Investment decisions are expected to be delayed given the due-diligence criticality and including new parameters for evaluation in the post-pandemic world.

Investors expect to focus on segments minimally impacted by the pandemic or those with promising opportunities, such as technology, e-commerce and healthcare. Over the longer term, these segments would see positive structural changes, which will drive more robust growth due to changing consumer behaviour.

E-commerce, technology, information technology and IT-enabled services, financial services, and lately, infrastructure and real estate have dominated the private investment market. Healthcare is a crucial sector that will garner even more interest and attention post-pandemic.

“Overall, while wait-and-watch would be the approach, the focus will be on niche opportunities and lower valuations in few sectors with good growth prospects. What’s gratifying is that over 60 per cent of the investors have expressed confidence that India will continue to attract international funds within the Asia-Pacific region over the long run,” Anjali Nathwani, associate director at Crisil Research said.

Baring the fund-raising spree by Reliance Industries for its Jio Platforms – including about $9.5 billion from PE funds alone – the first quarter of fiscal 2021 saw very low traction. PE-VC investments by value were down 60-70 per cent in the first quarter (on-year), excluding Jio Platforms.

PE-VC investments have grown from about $15 billion in fiscal 2015 to about $40 billion in fiscal 2020. Fiscal 2020 investments figures would have been even higher, had February and March not been pandemic-hit. Investments declined 45 per cent in February and 70 per cent in March, over the average monthly investments in the past three fiscals.