After a file yr in 2019, non-public fairness investments in H1 2020 have been smooth at about $13 billion (excluding investments in Jio), which marked a 40% decline in contrast to H1 2019. Investment actions witnessed a sharper decline within the second quarter (Q2) versus the primary (Q1), as investor sentiment remained muted due to a nationwide lockdown and a spike in Covid-19 circumstances in India. Further, in Q2 2020, investments plummeted by nearly 60% year-on-year (YoY) in contrast to a 25% decline in Q1 2020.
A transparent cutback on the variety of large-ticket funding offers contributed to the low funding momentum, particularly in banking, monetary companies and insurance coverage (BFSI) and actual property sectors. The variety of giant offers, larger than $100 million, diminished to about 30 in contrast to 55 throughout the identical interval final yr.
While shopper know-how, Software as a Service (SaaS), and BFSI dominated H1 2020 contributing about 55% of the entire investments, the healthcare sector ballooned and had the very best development. Within shopper know-how—ed-tech (instructional know-how), vertical e-commerce, and food-tech (meals know-how) obtained most investor curiosity, pushed by the rising demand for at-home companies. For instance, shopper know-how giants—BYJU’s, Swiggy, Zomato and FirstCry cumulatively raised about $1 billion or roughly 8% of the entire H1 investments.
Investments in SaaS grew due to the necessity for digitization and enterprise course of automation, throughout corporations. The sector picked up a number of giant offers of greater than $100 million in H1 2020, led by Postman (a collaboration platform for API improvement) and HighRadius (a treasury administration resolution supplier).
Within BFSI, non-banking monetary corporations (NBFCs) attracted most investments, particularly in Q1 2020, as conventional sources of capital like financial institution lending have been constrained due to tight liquidity situations. IndoStar Capital Finance, Hero FinCorp and DMI Finance raised the most important investments within the area.
Healthcare as a phase, leaped in H1 with about 50% YoY funding uptick in contrast to an general decline of 40%. Drug manufacturing corporations sought most investor curiosity, amidst a rising competitiveness of Indian drug producers versus China. Piramal, SeQuent Scientific and Intas Pharmaceuticals—every raised over $100 million investments in H1 2020.
The prime 15 offers accounted for about 35% of the entire investments in H1 2020. Apart from the aforementioned sectors, the Indian power sector garnered large-ticket investments, with three of the highest 15 offers occurring on this area. These investments included photo voltaic asset purchases from ACME Cleantech Solutions and SP Infra, and the setting-up of O2 Power, a renewable power funding platform. In addition, distressed asset investments in RattanIndia Power and Uttam Galva Metallics additionally made it to the highest 15 large-ticket offers.
VC investments nonetheless, remained unscathed as they maintained H1 2019 ranges of about $4.three billion. Consumer know-how and SaaS continued to get the most important share of VC investments, with sizeable fundraises by BYJU’s, Swiggy, CureFit, Unacademy and Postman.
Exit momentum declined in H1 2020 in each quantity and worth phrases, due to a weak fairness market sentiment. The complete worth of exits declined by about 45% YoY to $three billion in H1 2020, owing to a decrease variety of exit offers which fell 35% to 75 in contrast to the identical interval final yr.
However, as companies reopen, non-public fairness (PE) and enterprise capital investments are expected to proceed flowing into the nation, with traders feeling assured concerning the long-term potential of the Indian financial system, the place they pumped in a file $45 billion throughout 1,000 plus offers in 2019.
The short-term outlook for the financial system is clearly difficult. However, the basic drivers—infrastructure-led spending, primary demand from a big shopper base and headroom for development, ought to propel the financial system in the long term.
Going ahead, funding exercise is expected to rise in internet-based know-how and healthcare, thrusted by a wider adoption of at-home companies in training, e-commerce, and enterprise know-how together with an elevated deal with drug discovery and manufacturing. These funding themes have additionally performed out in nations like China, who’re previous their Covid-19 peak intervals.
Sriwatsan Krishnan and Aditya Shukla are Partners and Prabhav Kashyap is a Principal at Bain & Company. They are leaders within the agency’s Private Equity follow and have additionally authored the ‘India Private Equity Report 2020’ .
The views expressed are private.