What is The Private equity’s future in India
In India, FY2021 Saw an Average Equity Fund Size of $94 million.
Despite the Russia-Ukraine war, the looming threat of a COVID-19 fourth wave, US Federal Reserve’s rate hike, shrinking global tech valuations, exiting foreign portfolio investors, slipping Rupee value against the US Dollar, and uncertain public market conditions – private markets in India have remained strong and steady.
In addition, 2021 also saw the India startup ecosystem record ~$65 billion in PE/VC investments. This pool was made up of domestic investors alongside a large quantum of India-focussed capital, raised globally across private equity and venture capital funds. Though traditionally the private capital investments in India found their source in global pools like capital-pension funds, endowments, and sovereign funds – the past few years have seen domestic investors become very active. This has made alternative investments an integral part of portfolio allocations among family offices and HNIs
The largest baggers of private equity over the last few years have been technology-led businesses and financial services. And the birth of 100+ unicorns proves that there has been an increase in the scale of investments. In fact, according to the Hurun India Future Unicorn 2021 report, 12 unicorns came into existence in the first eight months of 2021.
Also, India is home to the third-largest start-up ecosystem in the world, expected to grow at 12-15% annually. A report, PwC projected that deals with activity during the first half of 2021 added up to $40.7 billion across 710 deals that included private equity and strategic acquisitions.
More capital allocation is expected to take place, with larger pools of capital being mobilized towards market leaders — making other companies prepare for longer fund-raising cycles. Another interesting development is that traditionally, funds raised found their purpose in fueling financial growth. Today, however, funds also get mobilised towards tactical growth opportunities like the acquisition of intellectual property, sectoral consolidation, and buyout of teams or capabilities.
Additionally, there is also more focus on operational excellence, corporate governance, and making sure promoters are personally invested in the business.
In comparison to the average size of VC funds which stood at $35 million at the end of FY2021, private equity funds measured an impressive $94 million. These averages are projected to go up as India continues to attract more and more fund houses. Also, the top five private equity firms accounted for 37% of the total private equity capital raised in the last five years. Given India’s large consumer base, the Indian economy has come to be viewed as a favorable location for investment operations and absorption of big-ticket investments.
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