Fund raising activity goes 'cold' in India; PE, VC investments may dip up to 60% in 2020 due to COVID-19: EY
In the past few years, fund raising activity has been touching record highs, and grew 28 percent to $48 billion in 2019.
Mumbai: Private equity and venture capital investments in India may decline up to 60 per cent in 2020 due to COVID-19 pandemic, according to a report by consulting firm EY.
Fund raising activity, which typically influences future investments, has also gone “cold”, if one were to look at March's data of private equity (PE) and venture capital (VC) funds having raised only $85 million, EY said in a statement.
In the past few years, fund raising activity has been touching record highs, and grew 28 percent to $48 billion in 2019. However, there have been concerns on the same after the emergence of the pandemic, which is set to lead to a unprecedented impact on economic activity due to lockdowns and social distancing. EY projected Indian PE and VC investments at $19-26 billion in 2020, which is a 45-60 percent decline over the 2019 figures.
It said March 2020 saw investments of only $818 million, the first time in three years that the monthly figure has slipped under the $1 billion mark.
In January-March, the PE/VC investments fell by 50 percent at $5.1 billion.
Rather than looking at newer private companies, investors will be looking at more private investments in public equity (PIPE) deals and also growth capital, it said.
“The COVID-19 pandemic has caused severe dislocations across markets, and with many countries under lockdown, economic activity has contracted significantly,” Vivek Soni, EY's National Leader for Private Equity Services, said.
He said there is still a lot of uncertainty around the future trajectory of COVID-19 , a holistic understanding of its ramifications on the global and Indian economy and the near-term economic trajectory of the country.
The firm said travel restrictions and lack of in-person meetings have significantly slowed down the deals that are in process, and added that these deals will be revalued if not cancelled once the lockdown restrictions are lifted and more clarity emerges on future revenues, rebooting of supply chains.
Investors are most likely to go for a defensive play which may include investments in companies in the technology, consumer goods (packaged essentials, personal and healthcare, food processing and retail), pharmaceuticals as well as sub-sectors like medical supply and services, biotech, agricultural products, edtech, chemicals and e-commerce sectors, it said.
Activity in the financial services and fintech, infrastructure and real estate, healthcare, non-essential consumer Goods and services (durables, apparel, mobility, restaurants) that till recently attracted significant amounts of PE/VC investments is expected to slow down and may take some time to find traction, it said.
Exits, which stood at $11.1 billion in 2019, are expected to shrink by 50-67 per cent in 2020, it said.
“PE/VC funds are more likely to hold portfolio positions for longer, work through the crisis and sell in better times as opposed to selling at deeply discounted valuations,” it said.
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