Investments in the infrastructure and real estate sectors have helped offset the yoy decline of ~25% in pure play PE/VC

• October 2023 recorded US$3.4 billion in PEVC investments.
• In October 2023, startup investments valued at US$1.3 billion were the highest across 41 deals compared to US$608 million invested across 47 deals in October 2022, 109% growth in value terms.
• From a sector point of view, retail and consumer products was the top sector in October 2023.

Mumbai, 20 October 2023: According to the EY-IVCA PE/VC roundup, PE/VC investments in October 2023 (US$3.4 billion) were 3% lower than October 2022 (US$3.5 billion) and 19% lower than September 2023 (US$4.2 billion). October 2023 recorded 17 exits worth US$1.3 billion, compared to US$1.6 billion in October 2022 across 15 deals.

Vivek Soni, Partner and National Leader, Private Equity Services, EY said, “October 2023 recorded US$3.4 billion  in PEVC investments, 3% lower than the investments in October 2022 and 19% lower than September 2023. The number of deals in October was lower by 13%  y-o-y.

In October 2023, startup investments valued at US$1.3 billion were the highest across 41 deals compared to US$608 million invested across 47 deals in October 2022, 109% growth in value terms. Growth investments recorded US$1.2 billion across 16 deals, a 39% decline in value terms y-o-y.

From a sectoral perspective, retail and consumer products were the leading sectors in October 2023, driven by a substantial investment from the Abu Dhabi Investment Authority in Reliance Retail Venture Limited, totaling US$623 million across five deals. Following closely, the real estate sector secured the second position, attracting investments amounting to US$601 million across six deals.

PE/VC exits in October 2023 were at US$1.3 billion across 17 deals, a 21% decline  in value terms y-o-y. Secondary exits were the highest valued at US$637 million across  seven deals.

Investments in the infrastructure and real estate sectors have helped offset the decline of ~25%  in pure play PE/VC investments in 2023 till date. While the broader markets have shown signs of recovery, the geopolitical tension and conflict in the Middle East is adding to global uncertainty. Inflation continues to remain the biggest pain point across economies and is proving to be sticky. Any sustained spike in crude oil prices will have a detrimental impact on inflation around the world in general and the Indian economy in particular. Despite a recovery in the capital markets, PE/VC investments, especially in the startup space, are still lacking momentum. While secondary deals are helping to shore up the PE/VC deal activity, startups continue to struggle to raise primary capital. Although the Indian consumption story continues to remain strong, the increase in uncertainty on account of global factors and impending state and central elections in India seem to be slowing down progress in deal pipeline activity.  While there have been no large, billion dollar plus deals in the past 2months, there are a few in play, which if delayed, could lead to a down year for PE/VC investments, specifically in the pure play PE segment.  We remain cautiously optimistic.”

Investments

In October 2023, PE/VC investments amounted to US$3.4 billion, marking a 3% decrease from October 2022 (US$3.5 billion) and a 19% decline from September 2023 (US$4.2 billion). The number of deals in October 2023 (70) dropped by 13% compared to October 2022 (80) and 16% compared to September 2023 (83).

Notably, October 2023 witnessed nine large deals totaling US$2.4 billion, reflecting a 9% increase YoY. The largest deal involved Abu Dhabi Investment Authority investing US$598 million in Reliance Retail Venture Limited.

Startup investments took the lead in October 2023, reaching US$1.3 billion, a substantial 109% YoY increase from US$608 million in October 2022. Growth investments followed with US$1.2 billion, a 39% decrease from October 2022 (US$2 billion). Buyouts ranked third in October 2023 at US$581 million, showing a 9% growth from October 2022 (US$534 million). Credit investments amounted to US$169 million, marking a 33% decline from October 2022 (US$251 million). Private investments in public equity (PIPE) reached US$168 million, indicating a 51% increase from October 2022 (US$112 million).

In terms of sectors, retail and consumer products led in October 2023 with US$623 million in PE/VC investments across five deals, propelled by a significant US$598 million investment from Abu Dhabi Investment Authority in Reliance Retail Venture Limited. The real estate sector followed as the second-largest, attracting US$601 million across six deals.

Spotlight: PE/VC investment trends in the Real estate and Infrastructure sectors

Robust growth in PE/VC investments:

Over the past six years, PE/VC investments in India's real estate and infrastructure have nearly doubled, comprising 40% of the total PE/VC investments. In 2023, these sectors are poised to achieve a record-high in PE/VC investments. These investments have mitigated the 25% YoY decline in pure play PE/VC investments, marking the second-worst performance since the 2020 COVID low.

Since 2018, the real estate and infrastructure sectors have attracted a substantial US$83 billion in PE/VC investments, with 56% in infrastructure and 44% in real estate. Pension funds and sovereign wealth funds have been the leading investors, contributing 30% of total PE/VC investments since 2018.

Investments in these sectors have primarily involved buyout transactions, aiming to acquire income-generating assets. In real estate, a significant portion went to commercial real estate (50%), followed by residential real estate (16%). Recently, there's a rising interest in logistics, warehousing, and data centers, with data centers securing the second-largest investment segment in 2023 at US$2.4 billion. These segments are anticipated to attract more investments due to increased digital penetration, data usage, and the development of infrastructure corridors across India.

In the infrastructure sector, investments were predominantly directed towards renewables (32%) and roads and highways (29%).

The growth in PE/VC investments in real estate has been driven by a secular demand growth:

Investor confidence in Indian real estate is increasing steadily as a reflection of improvement in the Indian economy and state of the real estate industry.

The office market was adversely hit during the 2020 and 2021 calendar years, because of the COVID-19 pandemic and lockdowns. Adoption of work from home reduced office space demand. This trend is however reversing driven by greater value being provided by co-located, collaborative work environments that are increasing productivity.

Data centers are likely to attract investments of US$10 billion in the next three years according to a report by industry body CII1. The report projects the data center stock to cross 23 million square feet by 2026, catering to a total capacity of around 1800 MW. Increased internet access, government digitalization initiatives, and the adoption of cloud computing, IoT, and 5G are the primary drivers.

Investors are capitalizing on the data center revolution, fueled by data localization efforts as well. They are also looking at stable income and better yields that the segment can provide. Global institutional investors and developers have been partnering with data center operators to capture the required operational expertise and market experience in data center development.

Likewise, some of the world’s largest logistics players and private equity fund managers are foraying into Indian industrial and logistics spaces. 2023 also saw the entry of Prologis into India, the largest warehouse owner in the world.

India’s logistics and warehousing sector has witnessed remarkable growth in recent years, driven by several key factors:

• E-commerce explosion: The surge in online shopping has led to increased demand for efficient warehousing and last-mile delivery solutions.
• GST implementation: The Goods and Services Tax (GST) streamlined the tax structure in India, resulting in the consolidation of warehouses and the need for larger, more strategically located facilities.
• Infrastructure development: Improvements in transportation infrastructure, including highways and railways, have enhanced connectivity and reduced transit times.
• Government initiatives: Government policies such as “Make in India” and “Atmanirbhar Bharat” have encouraged investments in logistics and warehousing.

The growth in PE/VC investments in infrastructure has been catalysed by the growing pipeline of assets backed by government spending:

Private equity investors in India express optimism for the nation's infrastructure growth, particularly in the social sector and renewable projects. Robust deal flow is observed in key infrastructure areas such as roads, transmission, renewables, ports, and airports. The PM Gati Shakti Master Plan, valued at US$10 trillion, is a catalyst for investments in integrated infrastructure across transport modes. This initiative is fostering the creation of income-generating assets, forming an attractive investment pipeline for PE/VC investors.

The government's emphasis on decarbonization and the ambitious target of establishing 500GW renewable capacity by 2030 are driving substantial investments in renewables. PE/VC investments in this sector often involve platforms constructing assets through greenfield and brownfield development.

The growing popularity of Infrastructure Investment Trusts (InvITs) is noteworthy, constituting 16% of PE/VC investments in Indian infrastructure since 2018. With the continuous development of assets, investments in InvITs are expected to rise, providing an effective means for capital rotation for both government and corporate asset owners.

Exits

October 2023 recorded 17 exits worth US$1.3 billion, compared to US$1.6 billion in October 2022 across 15 deals.

Secondary exits were the highest in October 2023 at US$637 million across seven deals, followed by open market exits at US$343 million across five deals.

The largest exit in October 2023 saw Warburg Pincus and Goldman Sachs exit from Good Host Spaces Private Limited for US$320 million.

Fundraise

October 2023 recorded total fundraises of US$2.4 billion compared to US$2.2 billion raised in October 2022 and US$1.1 billion in September 2023.

US$964 million raised by Edelweiss Alternatives Special Situation Fund was the largest in October 2023.

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About IVCA

The Indian Private Equity & Venture Capital Association (IVCA), is the apex body promoting the Alternative Investment Funds (AIFs) in India and promotes stable, long-term capital flow (Private Equity (PE), Venture Capital (VC) and Angel Capital) in India.

With leading VC/ PE firms, institutional investors, banks, corporate advisers, accountants, lawyers and other service providers as members, it serves as a powerful platform for all stakeholders to interact with each other. Being the face of the Industry, it helps establish high standards of governance, ethics, business conduct and professional competence. With a prime motive to support the ecosystem, it facilitates contact with policy makers, research institutions, universities, trade associations and other relevant organizations. Thus, support entrepreneurial activity, innovation and job creation.