Mirroring the global trend, Indian private equity and venture capital (PE-VC) investment softened by ~35% from ~$62 billion in 2022 to ~$39 billion in 2023, returning to pre-Covid-19 activity levels. PE investments displayed comparative resilience, with a 18% decline vs. VC activity, as large-scale dealmaking persisted for high-quality assets. 2023 saw a fundamental paradigm shift towards value, focusing on traditional industries like healthcare, energy, manufacturing; making 2023 a set up year for India, which remains a high-momentum and attractive region for long-term investing. These are among the findings from Bain & Company’s ‘India Private Equity Report 2024’, released today in collaboration with the Indian Venture and Alternate Capital Association (IVCA).

“Despite the decline in PE-VC investments on the back of a global slowdown, India continues to remain a bright spot in Asia-Pacific (APAC) as India’s share of APAC PE-VC investment increased from ~15% in 2018 to ~20% in 2023. Investor confidence in the country’s robust growth story and strong fundamentals remains firm, with funds actively diversifying into new sectors/asset classes outside core areas and continuing to scale their India teams.” said Prabhav Kashyap, Partner at Bain & Company, and co-author of the report.

2023 emerged as a marquee year for Indian exits with exit values soaring by 15% to $29 billion, alongside a rise in exit volumes from 210 to 340. This was driven primarily by public market sales (notably block trades) which comprised half of exits by value, benefitting from increasingly deep Indian public markets, which outperformed those of most major economies, with a significant increase in domestic investor participation. Block/bulk trades accounted for 90% share by value and were prominent across both traditional and new-age sectors for listed companies.

India saw PE investments of $29.6 billion in what remained a subdued year for private equity globally—registering a drop of 18% over 2022’s peak value of $36 billion. PE contributed to ~75% of total PE-VC deal value as large scale deal-making persisted for high-quality assets. The drop in VC investments was much sharper, with investments at $9.6 billion in 2023 versus $25.7 billion the previous year (2022). VC deal flow decreased significantly as investors continued to prioritize unit economics over growth and recalibrated their strategies amidst macroeconomic challenges.

Traditional sectors have shown resilience and gained share, comprising ~75% of PE-VC investments in 2023, compared to ~60% in 2022, as investors continue to support businesses with mature operating economics and secular growth characteristics.

Healthcare investments reached a record ~$5.5B in 2023, fuelled by ongoing consolidation in multi-specialty providers and the emergence of scale single-specialty assets with attractive business profiles. Advanced manufacturing also witnessed higher deal volume, driven by global supply chain diversification and government incentives. Notable activity was seen in electric vehicle (EV) original equipment manufacturers (OEMs) (with numerous $100M+ deals driven by growing EV penetration) and packaging (with multiple $100M+ deals into companies with 70%+ sales from exports).

India PE-VC dealmaking is expected to remain tempered in 2024 amid global macroeconomic stabilization. However, traditional sectors such as infrastructure, healthcare, advanced manufacturing, and renewable energy are likely to attract outsized investments in India. This is due to positive fundamentals, supportive policy environment (such as production linked incentives, tax incentives, etc.), and the emergence of scale assets across multiple sub-segments. “While India PE-VC dealmaking is expected to remain somewhat cautious in 2024, India’s robust fundamentals coupled with a supportive policy environment, will continue to draw strong interest from investors, especially in traditional sectors like manufacturing, which benefits from global macro trends like supply chain diversification.” said Sai Deo, Partner at Bain & Company, and co-author of the report.

Strong deal activity is expected in healthcare and advanced manufacturing across sub-segments in 2024. Healthcare is likely to witness continued deal activity across multi-spec and single-spec providers. Within advanced manufacturing: packaging, electronics, and EVs are likely to see an uptick in deal activity as scale packaging assets in globally competitive niches are likely to come to market, electronics manufacturing expands rapidly with government support, and EV penetration is on the rise.

Furthermore, global supply chain diversification is likely to benefit Indian manufacturers in select, export-oriented sectors such as electronics, pharma (especially in APIs & CDMOs), and chemicals (specialty chem and agrochem). These sectors boast globally competitive Indian scale players and robust government support.

“In a year marked by global economic uncertainties, India’s private equity landscape demonstrated remarkable resilience, with exit values surging by approximately 15% to reach $29 billion in 2023. The rise in domestic investor participation reflects growing confidence in India’s economy. With India emerging as a key player in Asia-Pacific PE-VC activity, the influx of capital from both domestic and global funds signifies a promising future. As IVCA, we’re committed to fostering this growth and facilitating meaningful investments in India’s vibrant ecosystem,” said Rajat Tandon, President, IVCA.

With subdued deal flow and elevated interest rates, Indian funds are increasingly focusing on portfolio and value creation to drive returns, expanding their operating teams and conducting holistic diligence to identify value creation opportunities early on.