Future Trends in the Private Equity Market of India

Introduction

Despite the pandemic, India’s economy has been ranked second on Mint’s emerging market’s league table as of May 2021. As the second biggest population of the world attempts to recover from the pandemic, India stands as a fertile opportunity ground for many business opportunities. Many industry figureheads including Carlyle Group and Bain Capital have acknowledged the huge potential in the Indian markets and have begun acting upon such indications.

Investments and Incentives

Starting in 2019, the liquidity surplus in the CBI (Central Bank of India) coupled with low interest rates produced a fertile breeding ground for higher risk investments. This was evident in 2020 with private investments hitting a record high of $62.2 Billion.

From an investor’s perspective, India is serving as home to many prospective investment sectors. According to Bain and Co’s 2021 Private Equity (PE) report, India’s IT/ITES, consumer tech and healthcare sectors are expected to attract heavy investments followed by the financial services sector[1]. With businesses primarily operating in online mode, the IT/ITES sector has grown considerably. As for the healthcare and pharmaceutical sector, the market for active pharmaceutical ingredient (API) has surged substantially.

The e-commerce markets of India has also grown significantly in the past year. With the pandemic, there has been a paradigm shift in the day-to-day activities of individuals, as they have been exposed to the convenience and ease that the e-commerce industry provides. An premier exemplar of this is online shopping, initially seen as a luxury, the progression of the pandemic now renders online shopping a norm in society. Confirming this, we have seen a large amount of growth in the market. According to the EY-IVCA (India Private Equity & Venture Capital Association) Trend book 2021, the e-commerce sector is reported to grow at a CAGR (Compound Annual Growth Rate) of 27% from 2019-2024; eventually reaching $99 Billion by 2024[2].

As for the insurance sector, in April 2021 the Insurance Regulatory and Development Authority of India (IRDAI) permitted insurance companies to invest in Fund-of-Funds (FoF), which is a major boost to the private equity industry.

Conclusion

In the last decade, the private equity market of India has grown exponentially. The number of funds in India has grown to over 300 from just 75 in 2010[3]. These funds have deployed almost $250 Billion of capital. With the Indian GDP expecting to cross USD 5 Trillion in the coming years, funding from private equity players can be fundamental for many entrepreneurs and businesses of the Indian economy.

[1] https://www.livemint.com/economy/it-consumer-tech-healthcare-to-be-top-bets-for-pe-funds-report-11623174525657.html

[2] https://ivca.in/ivca-ey-pe-vc-agenda-india-trend-book-2021/

[3] https://www.entrepreneur.com/article/371129