India has multiple bright spots amidst a globally challenging year for PE-VC Investments

New Delhi [India], May 13 : The year 2023 saw a declining trend in Indian private equity and venture capital funding. Deals reduced by 35 percent from USD 62 billion in 2022 to USD 39 billion in 2023. The overall slowdown was primarily driven by global factors, including weakened investor sentiments, high interest rates, the slowdown in consumption and geo-political tensions.
A Bain India report suggests there are multiple bright spots in India, amid a globally challenging environment. The report says PE-VC may remain tempered in 2024, but traditional sectors like healthcare, advanced manufacturing, infrastructure and renewable energy are likely to attract outsized investments in India. This is due to positive fundamentals and supportive policies like Productivity Linked Incentive or PLI schemes by the government.
The report further adds global supply chain diversification is likely to benefit Indian manufacturers in many export-oriented sectors like electronics, pharma and chemicals. Indian manufacturers in these sectors are globally competitive and have the potential to do good with government support. Secondly, global supply chain diversification is poised to benefit Indian manufacturers in pharma active pharmaceutical ingredients (APIs), electronics, and chemicals with competitive global positioning. Generative AI is another sector where India can outperform the world and it is increasingly in top-of-mind for Indian funds.
The decline in investments during 2023, was largely driven by a 60 per cent reduction in VC investments due to their exposure to high-growth businesses with less established economic models. But amid the overall decline in PE-VC investments, traditional sectors remained comparatively resilient, declining moderately by 15 per cent. Within traditional sectors, healthcare investments recorded a high of USD 5.5 billion in 2023, almost three times that of 2022 levels.
Advanced manufacturing also witnessed relatively higher activity, with investments growing by 20 per cent per annum over 2021-23, driven by global supply chain diversification and government incentives. Notable activity was seen in electric vehicle (EV) original equipment manufacturers (OEMs) and packaging sectors. Conversely, software as a service (SaaS) and new-age tech investing declined sharply, by 60 per cent. Investments in new-age tech decreased as investors increasingly prioritized the viability of the business model and proven economic performance.
The report further says that despite the slowdown in deal-making, 2023 was a marquee year for Indian exits. Exit value soared by 15 per cent to USD 29 billion. These sales benefited from the inherent depth of the Indian markets. In 2023 Indian markets outperformed most of the major economies, with a significant increase in investments by domestic investors.
India is playing an increasingly significant role in Asia-Pacific PE-VC activity. It accounted for 20 per cent of all PE-VC investments in 2023, up from 15 per cent in 2018. This has led to a rise in capital from both domestic and global funds, who are now diversifying across various sectors and asset classes within India.
The outlook for India is bright, India is expected to be the fastest-growing major economy in 2024 likely to result in higher capital deployment. Stable economic landscape, the government targeting the reduction of fiscal deficit to 4.5 per cent and RBI targeting to bring inflation below 4 per cent. China+1 policy to benefit Indian manufacturers and India focussed funds are actively exploring investment opportunities in Generative AI cases.