India to remain an extremely attractive market for global PE players in 2021

The year 2020 proved to be a year of profound disruptions with the onset of COVID-19 pandemic which triggered major economic and societal changes in the country. The economy faced major challenges amidst nationwide lockdown, labour disruptions, demand contraction and capital inadequacy, among other issues.

However, despite various concerns, the Private Equity (PE) space showed optimism as the PE investment activity largely kept pace and momentum of the previous year. During the initial months of slowdown, private equity investors showed a more cautious approach focussing on existing portfolio. But as the likely impact on various sectors started to take shape, the PE investors went into full drive to cherry pick better assets. Typically, economic disruptions have proven to be a good time for private equity industry to build better portfolios. Therefore, by end of 2020, total PE investments worth $38.2 billion were recorded, which was in line with the $38.9 billion investments in the previous year. Growth-stage rounds bagged highest investment of $15 billion, followed by late-stage rounds with investment of $11.2 billion.

Reliance Group's Jio Platforms and Retail Ventures attracted marquee investors but even beyond that, the private equity players were extremely active on the investment side. Healthcare was an obvious centre of focus, amidst the ongoing pandemic, touching a record high of $2.5 billion investments. Technology sector, which has been least impacted by the pandemic, attracted investments of $5.8 billion and despite major concerns, Real Estate sector also managed to raise $4.8 billion mainly on the back of investments in RMZ Corporation. Among other sectors, Education attracted investments of $1.3 billion. The deal activity has demonstrated that the private equity players in India are quite positive about the long-term potential of the country and were unperturbed by the negative data around GDP decline and economic slowdown, which were seen as short-term blips driven by a black swan event like COVID-19 pandemic.

While things looked promising on the investment front, PE exits were muted on expected lines. There was no hurry to exit as it would have meant a suboptimal return to their investors, especially when the economic outlook of 2021 looks promising. There were valuation and expectation mismatch between buyers and sellers and therefore, exits showed a downhill trajectory with a significant decline of 56 percent as compared to the previous year.

2020 proved to be a challenging year for businesses and they needed to focus on remaining relevant. COVID-19 forced organisations to develop strong backends and technology has been a crucial factor behind survival of several businesses. Private Equity industry has ably guided and worked with the management of their portfolio companies, enabling them to navigate through the challenging environment.

India is likely to be one of the fastest growing major economies over next decade and therefore it is an extremely attractive market for the global private equity industry. With the onset of COVID-19 vaccine distribution, corporate India focussing on recapturing demand and building organizational resilience along with supportive government policies is expected to create a more conducive business environment for the investor community. The Private Equity investor outlook for 2021 remains extremely positive.

(Mohit Ralhan is the Managing Partner & CIO at TIW PE.)

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