Bain & Company’s India Private Equity Report 2021 offers key insights into the startup ecosystem

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2020 has been a very strong year for private equity in India, with the total deal value north of $60 billion.

Aditya Shukla, Partner, Bain & Company, says quite a few trends contributed to this, including the number of growth equity VC deals. The COVID-19 pandemic led to a decrease in the number of large ticket-size deals and a significant increase in number of smaller or medium-size deals.

The second trend was that consumer tech, IT, and SaaS sectors saw steady growth in terms of investment values and volume. The healthcare sector also contributed a great deal to investments in India last year. All kinds of funds were making investments, including sovereign wealth funds or hedge funds.

“This is a secular trend spread across sectors and I think it’s kind of reflective of the underlying strength of the fundamentals of the Indian market,” Aditya says.

According to Aditya, investor confidence has been quite high, especially during H1 2021 and over the second half of 2020. This could be measured in terms of dry powder from India-focused funds, which continues to be high. Additionally, market confidence is fairly high in terms of specific sectors and the underlying strength of the fundamentals of the Indian landscape.

“Investor confidence continues to be very high and has become a lot more targeted on specific sectors,” Aditya says.

In the last 10 years, exit values have come down except in 2018, when they were exceptionally high. There has indeed been a decline but not a drastic drop in exit values, according to Aditya. The primary reason is that most funds did not reach maturity in 2020 owing to the global pandemic.

Q4 2020 saw almost 60 percent increase in exit values and 160 percent increase in exit volume over Q4 2019. Companies have spent time re-engineering their portfolio, which somewhat contributed to the fall in exit values but green shoots of exit activity rebounding are being noticed through H1 2021.

Additionally, Aditya says there is very strong investment momentum spread across sectors. Consumer tech, and within that edtech, foodtech and logistics tech, continue to be very important in terms of investment momentum. A lot of funds are participating in SaaS and enterprise tech and a huge amount of activity is noticed in that area.

The IPO route is becoming significantly active and going forward, there will be a lot of exits through public market. There will be a lot more public market activity that will reflect a significant amount of confidence in the broader Indian private equity ecosystem.

Aditya says valuations have been high, but this is expected to change over the next few years. Certain sectors like consumer tech and SaaS, which are large market opportunities and have a lot of space for growth, have seen high valuations.

“Valuations have been on the higher side, but they will temper over the next couple of years as they have in other markets,” Aditya says.

Edited by Teja Lele Desai

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