PE could be hot for India despite winter funding

India’s share in the total allocation of global private equity capital has risen to 6% from 4% nearly five years ago, and senior industry executives said this could rise further in the next few years as investors look for pockets of growth. Huh.

This is in contrast to domestic public markets, in which foreign portfolio investors have pulled out records. 2 trillion in the first half of the year.

Bharat Banka, senior private equity professional and former CEO, Aditya Birla Private Equity, said, “Private capital inflows have seen a steady year-on-year growth, and I expect this trend to continue.” “That said, the pace of flows should pick up, given the overall strength of the Indian economy despite near-term adversities.”

Banka said the capacity of the Indian market to absorb large inflows of capital has also increased.

In 2021, private equity (PE) and venture capital (VC) inflows into India rose to a record $70 billion, riding on an increase in deal-making. “While last year was indeed a record for the Indian PE/VC industry in terms of both investment and exit activity, the short-term outlook is a bit fuzzy, given the current uncertainty around the pace of tightening by the US Fed, commodity prices ( oil in particular) and the fragility of global supply chains. In the medium term, we expect private capital inflows to grow barring a few blips here or there,” said Vivek Soni, partner and national leader of private equity services at consulting firm EY.

“Typically, in a low interest rate environment, institutional investors make larger allocations to emerging markets and, in a rising interest rate regime, these go down. We have seen some tightening by the Fed and there may be a lot more to come. It may have some impact in the short term,” Soni said. “However, in the medium to long term, the outlook for private capital flows is good largely due to its growth story and pre-eminent position in EM.”

PE inflows in the first half of the year stood at $28.76 billion from 1,049 deals, up from $65.46 billion from 2,114 deals in 2021, data from VCircle showed.

With India’s long-term prospects looming, industry executives said factors such as China’s crackdown on edtech startups and a sudden stop of capital from Western countries to Russia are likely to be important factors in the immediate future.

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“Stock market FII flows are volatile at the moment, but private capital investment is more sticky. And while the rupee has devalued, which may delay exit, investment may not really slow down depending on the industry. “India has enough dry powder to pursue investment,” said Hari Bugna, chairman and managing director of Invecent, investment advisor, India Life Sciences Fund.

“Given the challenges in China, large private capital allocators are constrained in their ability to fill their allocations for this year. Due diligence is very difficult to do in China and overall there is a lot of uncertainty about things like lockdown, policies. So capital earmarked for China will have to find its way to other Asian economies, including India,” Bugna said.

“Flow is also a function of the industry. While technology may be out of favor, there is a set of industries that are doing well because of domestic demand, and these are attracting capital. Pharma and healthcare are always favorites. are.”

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