These are trying times for India’s nascent private equity sector.
Through the first three months of this year, PE investment in the country hit its lowest point in five years. The amount of PE investments plunged more than 27% in the first quarter of 2017 to $3.04 billion from $4.19 billion a year earlier, according to News Corp VCC Edge’s India Quarterly Deals report. The decline in the number of deals was even steeper. In the first three months of this year, only 238 deals were struck, compared to 432 in the same period of 2016, a 45% drop.
Part of the issue is that exits have been harder to come by. VCC Edge’s data shows that exits fell to $1.4 billion for 1Q 2017 compared to $2.1 billion in the same quarter last year.
As investors wait to see exit performance improve, a funding crunch has taken hold. “Appetite for risk is low with consolidation, job cuts and rollback of funding plans underway,” Nita Kapoor, the head of India new ventures at News Corp, said in a statement.
Despite the overall dip in investments, the median value of PE deals almost quadrupled to $2.25 million from $600,000 between the first quarter of last year and this year. The most recent quarter’s average was mostly lifted by telecom provider Airtel’s parent company Bharti Infratel sale of a 10.3% stake for $946 million to private equity firm KKR, Canada Pension Plan Investment Board and others. Similarly, in the mergers and acquisition space, the Vodafone-Idea deal made up the bulk of the total $16 billion M&A activity at $12.4 billion. The total number of M&A deals came in at 226, slipping from 237 for the last quarter of 2016.
Other arenas of securing funding also fell short: Angel investments hit a four-year low at $28 million while venture capital investments fell 14% year-over-year.
Delhi national capital region (NCR), which includes the surrounding urban areas in the neighboring states of Haryana, Uttar Pradesh and Rajasthan, showed the most promise. In mid-2016, the funding flowing into Delhi overtook India’s Silicon Valley, Bengaluru. In the first quarter of 2017, the trend continued: More than $1.2 billion worth of funding poured in to the region, trumping Mumbai’s $692 million and Bengaluru’s $441 million combined. In each of the top three cities, information technology accounted for most of the inflow of cash. Close to 60% of the deals in Bengaluru were in IT.
The investments are vastly concentrated in the national capital and the commercial capital of India. Together, Delhi NCR and Mumbai “attracted a bigger share of PE deals than Bengaluru, Hyderabad, Chennai, Pune, Kolkata, Jaipur and Ahmedabad put together,” VCC Edge noted.
To attract more investments, “India will need to continue making it easier to do business in the country, a large part of which involves a regulatory environment that is more conducive to business growth,” according to a 2017 report by management consultancy Bain. India was ranked 130 out of 190 nations in the World Bank’s global ease of doing business ranking—which considers only Mumbai and Delhi. The Modi government aims to reach the top 50 by 2018 and has started taking baby steps toward that goal: The National Investment and Infrastructure Fund will aid the enhance infrastructure financing in India. Initiatives like Make in India and Startup India should also help foster a friendlier fundraising environment.
powered by sue.ng a legal search engine