How will India's growing private equity market will help you?

India's private equity market is growing at an exponential level. Here are a few Key lessons and investment decisions that will help you.

Private Equity Interest in India Key lessons to learn from it

India is the hotspot of investments for Private Equity (PE) investors and Venture Capitalists (VC). As we speak, these private investment bodies propel India's next decade of the growth story. Despite the pandemic playing spoilsport, the follow-through growth in the next year fueled major investments from the PE/VC funds. Simply put, investments from PE/VC firms in India are flourishing. In this article, we will discuss their outlook and understand how we could make the most out of it. 

Investment Rampage: 2020 vs 2021

Let us play the number game 

  • $39.5 Billion - Total PE-VC funding in India for the calendar year 2020
  • $77.1 Billion - Total PE-VC funding in India in 2021 (a 62% rise from 2020 levels)

2021 saw the highest number of inflows from private equity funds compared to all previous years. When the pandemic hit, these firms liquidated their assets and were sitting on a huge cash pile, waiting for the right opportunities to invest. The rebound phase in 2021 opened the door to a valley of investment opportunities. 

Infrastructure vs Technology

Infrastructure and Real estate were a prime focus of PE/VC funds in the last decade, accounting for 50% buyout by value and 40% by volume of their total investments. 

In the same period, technology accounted for a mere 24% by value and 10% by volume. 

Redemption 2021

But 2021 had a different story to tell. Soon after the pandemic, PE/VC funds realized modern technology was the future. This time, technology was their predominant sector to invest in. As a result, 

Technology emerged as their preferred sector, accounting for 57% buyout by value and 16% by volume. 

The private equity industry is vast, with solid research-backed investment. Most of the time, they are well informed to predict upcoming trends or sometimes they go a step closer to creating one. They have hedges in different asset classes and are ready to switch to emerging markets. 

Startups: The Darling of Investors

The outlook for the startup ecosystem for the next half a decade is vibrant. Private Equity Investors are chasing to find the next HDFC Bank and Titan in the startup space. Accessible internet, low-cost upfront fees and penetration of knowledge have encouraged people of all backgrounds to be part of this startup ecosystem. Raising funds from VC/PE investors has become another icing on the cake. 

  • $ 7.3 Billion - PE/VC fund investments in Indian Startups in 2020
  • $28.5 Billion - PE/VC fund investments in Indian Startups in 2021

2021 alone had more cash inflow from private equity investors than all the previous three years combined. Startups account for 37% of total PE/VC investments in 2021. 

Raging Investments from PE/VCs

Investors chase returns in the long run. Startups give 10× 20× and even 100× returns in years.

Two reasons: Expanding Economy, Low operation costs. 

Startups (not all) burn cash to meet their revenue targets and expand rapidly in a short time. This adds up their valuation in the markets, making it easy for early investors to exit with exorbitant returns or stay invested for more.

How to make the most out of it?

Private equity funds don't buck the trend. Paying close attention to where money flows from PE/VC funds gives us an overall idea of the upcoming trends and emerging markets. Few methods are discussed to take advantage of their investment outlook.

E-commerce emerged as the go-to sector for investments in 2021, refer to this article, accounting for $15.9 Billion or 21% of their total investments. That is 5 times more money received than in 2020. Fintech and Edtech are other sectors into which PE/VC funds poured their money. Check out this article from entrackr for a detailed report.

Invest in Early Stage Startups

After you research and understand the outlook of PE/VC funds, do:

  1. Shortlist favourite sectors.
  2. Hunt for similar early-stage startups in that sector.
  3. Do basic research and check for the viability of the product/service. 
  4. Show your interest in investing in them. Talk to founders.

Startup-Yourselves

  1. Identify problems in familiar sectors.
  2. Offer viable market solutions
  3. Raise funds from PE/VC firms.
  4. Scale and productize your idea. 

Initial Public Offering (IPO)

Unicorns are going public by listing their shares. If you understand their business and think they have a sustainable business model, subscribe to their IPOs or simply wait for them to list and invest systematically in them. 

Also Read: Is Your IPO rightly Valued?

Wealth Management and Debt Funds

Private equity companies have wealth management offers, where they collect a pool of money to infuse into Indian startups and diversify income. You can also opt for such schemes.

India is racing its way to becoming a 5Trillion dollar economy. It is just the beginning of the process. PE/VC firms will act as catalysts to reach the destination. This is the right time to contribute our fair share and become an eminent part of this success. Let's shape India's growth story ahead. 

M Stock

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