India's PE-VC Funding Drop To $39 Bn In 2023; Traditional Sectors Draw 75% Investments

Mirroring the global trend, Indian private equity and venture capital (PE-VC) investment softened by 35 per cent from USD 62 billion in 2022 to USD 39 billion in 2023, returning to pre-Covid-19 activity levels. PE investments displayed comparative resilience, with an 18 per cent decline versus VC activity, as large-scale dealmaking persisted for high-quality assets.

Notably, 2023 saw a fundamental paradigm shift towards value, focusing on traditional industries like healthcare, energy and manufacturing; making 2023 a set-up year for India, which remains a high-momentum and attractive region for long-term investing, according to Bain & Company’s report in collaboration with the Indian Venture and Alternate Capital Association (IVCA).

“Despite the decline in PE-VC investments on the back of a global slowdown, India continues to remain a bright spot in Asia-Pacific (APAC) as India’s share of APAC PE-VC investment increased from 15 per cent in 2018 to 20 per cent in 2023. Investor confidence in the country's robust growth story and strong fundamentals remains firm, with funds actively diversifying into new sectors/asset classes outside core areas and continuing to scale their India teams,” said Prabhav Kashyap, Partner, Bain & Company.

The report stated that 2023 emerged as a marquee year for Indian exits with exit values soaring by 15% to $29 billion, alongside a rise in exit volumes from 210 to 340. This was driven primarily by public market sales (notably block trades) which comprised half of exits by value, benefitting from increasingly deep Indian public markets, which outperformed those of most major economies, with a significant increase in domestic investor participation. Block/bulk trades accounted for 90 per cent shares by value and were prominent across both traditional and new-age sectors for listed companies.

India saw PE investments of USD 29.6 billion in what remained a subdued year for private equity globally—registering a drop of 18 per cent over 2022’s peak value of USD 36 billion. PE contributed to 75 per cent of total PE-VC deal value as large-scale deal-making persisted for high-quality assets. The drop in VC investments was much sharper, with investments at USD 9.6 billion in 2023 versus USD 25.7 billion the previous year (2022). VC deal flow decreased significantly as investors continued to prioritize unit economics overgrowth and recalibrated their strategies amidst macroeconomic challenges.

Traditional sectors have shown resilience and gained share, comprising 75 per cent of PE-VC investments in 2023, compared to 60 per cent in 2022, as investors continue to support businesses with mature operating economics and secular growth characteristics.

Healthcare investments reached a record USD 5.5 billion in 2023, fuelled by ongoing consolidation in multi-specialty providers and the emergence of scale single-specialty assets with attractive business profiles. Advanced manufacturing also witnessed higher deal volume, driven by global supply chain diversification and government incentives. Notable activity was seen in electric vehicle (EV) original equipment manufacturers (OEMs) (with numerous USD 100 million plus deals driven by growing EV penetration) and packaging (with multiple USD 100 million plus deals into companies with 70 per cent plus sales from exports).

It added that strong deal activity is expected in healthcare and advanced manufacturing across sub-segments in 2024. Healthcare is likely to witness continued deal activity across multi-spec and single-spec providers. Within advanced manufacturing: packaging, electronics, and EVs are likely to see an uptick in deal activity as scale packaging assets in globally competitive niches are likely to come to market, electronics manufacturing expands rapidly with government support, and EV penetration is on the rise.

Furthermore, global supply chain diversification is likely to benefit Indian manufacturers in select, export-oriented sectors such as electronics, pharma (especially in APIs and CDMOs), and chemicals (speciality chem and agrochem). These sectors boast globally competitive Indian-scale players and robust government support.

"In a year marked by global economic uncertainties, India's private equity landscape demonstrated remarkable resilience, with exit values surging by approximately 15 per cent to reach $29 billion in 2023. The rise in domestic investor participation reflects growing confidence in India’s economy. With India emerging as a key player in Asia-Pacific PE-VC activity, the influx of capital from both domestic and global funds signifies a promising future. As IVCA, we're committed to fostering this growth and facilitating meaningful investments in India's vibrant ecosystem," said Rajat Tandon, President, IVCA.

With subdued deal flow and elevated interest rates, Indian funds are increasingly focusing on portfolio and value creation to drive returns, expanding their operating teams and conducting holistic diligence to identify value creation opportunities early on.