Is the information technology and IT-enabled services (IT-ITeS) sector becoming less attractive to private equity and venture capital (PE-VC) investors? The latest data from Venture Intelligence appears to indicate this. The IT-ITeS sector, which reported subdued financial numbers over the last few quarters, accounted for $2.2 billion of the total PE-VC investment pie in the June 2023 quarter, lower by 70 per cent from the same quarter last year ($7.3 billion). In contrast, traditional industries like healthcare and energy received more during the period.

Also read:PE-VC investments in Q2’23 decline 33% to $9.9 b: Venture Intelligence data

Investment in IT-ITeS industry has been steadily declining quarter-on-quarter over the last 18 months, according to data from Chennai-based Venture Intelligence.

Among the investments in tech industry in the June quarter, the $450 million investment in IBS Software by Apax Partners was the highest, followed by the $250 million raised by mobile app building platform Builder.ai (from M12, Qatar Investment Authority, Iconiq Capital, Jungle Ventures, and Insight Venture Partners), and the $150 million fundraise by construction materials marketplace Infra.Market from Varde Partners.

The healthcare industry attracted about $2.1 billion in the June quarter — a 123 per cent spike from $957 million in the June 2022 quarter. The $2 billion investment in Manipal Hospitals topped the chart, followed by Somerset Indus Capital Partners’ $18 million investment in Emil Pharma.

Also read:SEBI allows PE funds to become mutual fund sponsors

The energy industry saw $1.9 billion worth of investments in Q2 2023, up by 28 per cent from $1.5 billion in Q2 2022. Top deals in this segment include Brookfield’s two investments in renewable energy companies: $1 billion in Avaada Ventures and the $360-million buyout of Clean Max Enviro Energy Solutions.

Manufacturing is staging a strong comeback after a lost decade, says C Venkat Subramanyam, Founder, Veda Corporate Advisors.

“Clearly, big-ticket private equity investors have far more confidence in investing behind basic sectors like healthcare, infrastructure, manufacturing and financial services at this point,” noted Arun Natarajan, Founder, Venture Intelligence. What is noticeable between the two periods is the sharp slowdown in mega deals — PE investments of $100 million or more. While Q2 2022 saw 19 mega deals (12 in the internet and mobile sector), Q2 2023 saw only seven mega deals (five in the internet and mobile sectors, including two in PhonePe).  

PE-VC investment in IT-ITeS industry (amount in $ million)

PeriodNumber of dealsAmount
Q2 20231042,186
Q1 20231152,257
Q4 20221472,979
Q3 20222072,081
Q2 20222577,303
Q1 20223048,472

(Source: Venture Intelligence)

Rama Rao, Senior Managing Director and CEO, Spark Capital, a Chennai-based financial service provider, said manufacturing is evolving into an attractive opportunity. The IT-ITeS sector is down, with valuations for software-as-a-service and digital engineering falling sharply. Mergers and acquisitions will be in play in a few months from now. PE activity will be at lower valuations once markets readjust.

Also read:VC funding for Indian startups nosedives by 77.8% YoY: Report

“I see it as a long-term market trend. More investment in real sectors, valuations continuing to be robust in ESG-type [environmental, social, and governance investing] sectors, and services investments picking up post valuation readjustment,” he added.

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