India is one of the fastest-growing economies globally and is well on track to emerge as the world’s fifth largest economy in 2019, according to the International Monetary Fund. Here, we take a look at some of the key trends to watch over the coming years.
Funds in Market Riding on a High
As at January 2019, 125 India-based private equity & venture capital funds are in market, targeting an aggregate $18bn. This is the highest number of funds and amount of capital ever targeted, suggesting 2019 will be promising for private equity & venture capital fundraising in India.
Venture capital remains the most favoured strategy among India-based fund managers. Sixty-four percent of funds currently in market are venture capital vehicles, seeking $7.1bn in capital commitments.
Growing Sectors: Business Services & Internet
Private Equity-Backed Buyout Deals
Business services is the key area of interest in recent years. It topped the list in 2018 with 37 deals valued at a total of $5.4bn, accounting for 37% of aggregate deal value in India.
Venture Capital Deals
The internet sector has dominated the venture capital market in India for the past 10 years, reflecting India’s strong inclination towards the industry. In 2018, 309 internet deals were recorded, worth $6.4bn, or 67% of aggregate deal value.
Successful Capital Distributions – What’s Next?
The vast majority of India-based private equity AUM is held in growth ($12bn) and venture capital ($13bn) opportunities as at June 2018.
Due to successful capital distribution by India-based private equity fund managers, we may see LP allocations to India-based funds increase. Investors are likely to deploy capital because of the high liquidity, in order to reach or maintain their target allocations.
A build-up of dry powder in India could cause a correction in these high distributions, as increased competition would lead to a rise in valuations of opportunities in India, which could compress returns.
Driving Forces behind Private Equity & Venture Capital
With strong government backing and more frameworks being established, the venture capital space is becoming more institutionalized. Investors have greater clarity in the structure, process and due diligence of investments in start-ups.
Less restricted by regulations as compared to institutional investors, private wealth investors, such as family offices and wealth managers, with their longer-term investment horizons remain a vital component of the private equity ecosystem.
For more in-depth data and analysis on the Indian private equity & venture capital market, take a look at our recent report.
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