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Buoyed by a vibrant economy and high returns, the private equity (PE) and venture capital (VC) space in India is on track to record investments of $28-29 billion in 2018. This will make it a landmark year for the sector; its current best performance is $26.2 billion, recorded in 2017.
As of September 30 (three quarters of calendar 2018), the total PE/VC investments stood at $22.2 billion, 17 per cent more than the amount recorded in the same period last year.
“This year, Indian PE/VC investments had good momentum in the first and second quarters. In the first-half of 2018, cumulative PE/VC investments stood at $15.5 billion, 49 per cent ahead of H1 2017,” Vivek Soni, Partner and National Leader, Private Equity Services at EY India, told BusinessLine .
“Notwithstanding the slowdown in PE/VC investments in the third quarter, for the nine months ended September 30, 2018, cumulative investments at $22.2 billion were 17 per cent ahead of the same period last year.”
“And as we enter the fourth quarter, there are over $3 billion worth of announced deals awaiting regulatory approval. Assuming these deals close before year-end, we should cross last year’s record high of $26.2 billion of PE/VC investments by 8-10 per cent,” Soni said, adding deals worth another $5-6 billion would be closed, taking the total to $28-29 billion.
Spate of deals
Q4 2017 recorded a spate of mega deals such as the Softbank consortium investing $2 billion in Ola, Bain Capital investing $450 million in Axis Bank, Carlyle in SBI Cards (estimated at $300 million though the deal size was not disclosed) and investments by HDFC Life, among others.
In 2018, a high degree of activity was witnessed across financial services and fintech, real estate and infrastructure, health and technology (including e-commerce). Six deals are awaiting regulatory approval in Q4. (See chart)
“From a VC perspective, the euphoria witnessed during the first three quarters is expected to continue, and we will see a lot of activities. The three quarters have seen an investment of $4-4.5 billion, and we expect this run rate to continue, ending the year at $5-5.5 billion with an average ticket size of about $20-23 million. This would be across 200-220 deals,” said Nitish Poddar, Partner and National Leader, Private Equity, KPMG in India.
“Companies now have proven business models and have started generating stable revenue streams. With the strong demographics in the country there is a strong future for these companies,” he added.
December chill
However, a slowdown in expected starting by the end of December and spilling over to the entire Q1 of calendar 2019.
“There has been a distinct rise in global uncertainty on account of currency volatility, friction in global trade and crude oil price volatility. In India, there are some clouds on credit growth on account of the evolving NBFC situation. Further, the elections in 2019 could also have an impact and influence some investors to adopt a wait-and-watch approach,” said EY’s Soni.
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