PE, VC Investments Fall By Over 50% In May, Says Grant Thornton Report

After robust investments last year, fund managers are increasingly developing cold feet towards infusing large amounts of capital in the domestic market.

Reason? After funding generously last year, they are now adopting a ‘wait and watch’ approach and gauging the performance of their portfolio companies and the general economic condition in the country.

As per data available with assurance, tax and advisory firm Grant Thornton, the total amount of private equity (PE) and venture capital (VC) investments in the country fell by over 50 per cent last month when compared to May 2015. Sample this: PE and VC firms invested a mere $518 million in May 2016, while last year the invested figure stood at $1,248 million. But what is significant is even as the deal value fell, the total number of transactions grew marginally last month. In May 2016, as many as 71 PE/VC transactions were sealed as compared to 68 in May 2015.

Further, when compared to 2014, it is evident that big ticket transactions have fallen this year. In May 2014, a mere 43 PE/VC deals were sealed worth $846 million. Needless to mention, going by the data, investment values recorded an all-time low in the last three years.

The focus of PE/VC fund managers underwent a massive transformation last year with increased interest in the new economy sectors like ecommerce. The bourgenoning startup ecosystem attracted capital from fund managers in hordes last year with several innovative ideas coming in. This year, this sector is undergoing a bit of slowdown as already ample capital has flown into it. Now, it’s time for the startups to deliver and generate returns. Unless and until that happens, fresh investments are likely to witness a slowdown, say experts.

What’s more, second round of capital in the startup ecosystem may also take a hit leading to an overall slowdown in the sector. In the past few months, a lot of startups have undertaken measures – some even drastic ones like retrenchment - to keep their bottomlines intact. Some have also forced to shut down operations as they have failed to scale up. All in all, they have signalled an impending shakeout in the months to come that is in turn prompting the investor fraternity to stay away - at least in the short term!

However, going forward, the India growth story remains forward. “Whilst the deal momentum is good, there will be some big ticket transactions, especially in PE space,” said Prashant Mehra – Partner at Grant Thornton India. “As India remains a hot favourite for the PE investors, the government's ongoing measures towards easing statutory regulations and ease of doing business will perhaps enable those large investments,” he added.

Further, the ongoing banking reforms around debt consolidation and restructuring will further boost the deal activity through availability of debt for organic growth.