Private equity inflows touch $27 billion in H1 2022

The markets may be tepid with outflows from foreign portfolio investors and digital IPOs may have had a hard time in the last one year. However, that has not deterred or impacted the pace and momentum of private equity deals. For the first half of calendar 2022 ended in June 2022, the total private equity (PE) capital flows into India touched a record level of $27.6 billion. Clearly, global investors still the Indian start-up ecosystem as a veritable engine of its future growth and are willing to bet on it in a big way. 

Unlike the FPI flows, which come through the portfolio route, the private equity flows typically come through the foreign direct investment (FDI) route. Consequently, they are regarded as more stable than money coming in as portfolio investments and also more conducive to the long term interests of India’s balance sheet. According to data compiled by the IVCA (Indian Venture Capital Association), there was a 15.5% growth in big ticket private equity investments and VC fund flows into India in the first half of 2022. 

However, the growth is not just in deal value but also in deal numbers. For instance, between January 2022 and June 2022, a total of 713 deals were signed as compared to 526 deals in the same period in the previous year. Clearly, the strong flow from PE funds and VC funds indicate that India’s long term growth promise is still very strong. It also evinces a strong government driven reforms intent, which has led to a lot of PE funds and VC funds taking a long term bet on the India story, especially the start-up ecosystem.

There were a number of big ticket deals in the first half of 2022. For instance, the biggest of them all was the investment of $1.8 billion that Viacom India received from Bodhi Tree Systems. Both are part of much larger and pedigreed groups. While Viacom India is part of the Reliance Industries group, Bodhi Tree Systems is part of the media empire owned by Australian media tycoon, Rupert Murdoch. In a sense, the PE interest in India is an outcome of much higher risk appetite among the private equity players and their India conviction.

Even apart from the Viacom-Bodhi deal, there were several big ticket deals that were witnessed during the first half of 2022. For instance, there was the buyout of IGT Solutions by Baring Asia as also the strategic investment by Bain Capital in IIFL Wealth, part of the India Infoline group controlled by Nirmal Jain. Among other deals, Welspun got $775 million from Actis. Above all, Dailyhunt, a news aggregator got $805 million from a clutch of global investors including the Ontario Teachers’ Pension Fund and Canadian Pensions.

The PE flows appear to be in total contrast to the digital IPOs that went public last year. Stocks like Zomato, Paytm and Policybazaar have seen deep cuts and are trading at huge discounts to their issue price. Even a stock like Nykaa, which is well above the issue price is trading at almost half its peak price. Amidst so much of pessimism around the listed digital plays, it is rather surprising that private equity players appear to be still quite positive on the India story. Even the valuation destruction has been much lower than the listed plays.

There are broadly 3 takeaways from the flow numbers. Firstly, there is still a solid appetite for quality Indian start-ups. Secondly, companies that avoided the IPO route may actually be better off. Last, but not the least, the long term private equity players are in a much better position to take a genuinely long term perspective of the India story.