India's private equity (PE) and venture capital (VC) sectors adeptly navigated a shifting economic and geopolitical landscape over the past three years despite significant disruptions. The sector emerged stronger, supporting high-quality deals this year, revealed Private Equity and Venture Capital in India 2023 published by Preqin, a London-based data investment company. 

The report is prepared in collaboration with the Indian Venture and Alternate Capital Association (IVCA). It is the official publication for the IVCA Maximum India Conclave - Singapore. 

According to the report, global macroeconomic challenges have a major impact on private equity and VC deal value in India. The year 2021 was a watershed year for India’s private equity and VC players. Fuelled by strong tailwinds such as a global public market rally and historically low-interest rates, the industry reached unprecedented heights. In contrast, there was a sharp drop in activity in 2022 primarily due to growing global macroeconomic challenges. As a result, aggregate deal value saw a sharp drop of 42 per cent from a record $60 billion in 2021 to $35 billion in 2022.  

Meanwhile, fundraising remains strong. In 2022, 70 India-focused private equity and VC funds closed, raising an aggregate of $8.5 billion, which is the highest-ever annual fundraising value, it added. 

The report also noted that investors have diverted funds from traditionally attractive sectors such as IT to healthcare energy and utilities. VC deals in IT experienced a sharp decline, plummeting from an aggregate value of $26.3 billion in 2021 to $8.3 billion in 2022. This slowdown has continued this year, with IT deal value shrinking to $1.7 billion in the first seven months of 2023. 

Due to uncertain market conditions, private equity and VC players are changing investment decisions, and more investors, local and global, seek quality assets. They are increasingly focusing on fewer, higher-quality assets and driving value creation within their portfolios  

The annual number of funds closing has more than tripled over the last decade. GPs in India are also raising and closing larger funds, with the average fund size almost doubling from $72.3 million in 2013 to $121.4 million in 2022.  

Rajat Tandon, president of IVCA says, “Looking at data of nine years, India's exit market has undergone significant deepening and diversification over the years, with aggregate exit value nearly quadrupling and more LPs discovering more accessible pathways. This transformative phase in the Indian investment landscape is characterised by changing sectoral preferences and a growing focus on quality assets, marked by a surge in fundraising, larger funds, and more efficient capital deployment." 

India-focused private equity and VC AUM reached $68 billion by the end of December 2022. Private equity dry powder levels grew from $4.8 billion to $5.8 billion in 2022, while VC dry powder jumped from $6.3 billion to $9.8 billion. There was a 68 per cent drop year-on-year in PE and VC deal value in India’s IT industry making it the most affected sector, by the end of December 2022, the report observed.