InvestorQ : Is it true that private equity or PE flows continue to be robust in the year 2022?
diksha shah made post

Is it true that private equity or PE flows continue to be robust in the year 2022?

Dawn Cherian answered.
2 weeks ago

In the first half when the FPI flows have been rather tepid, the private equity flows have come to the rescue. In fact, the momentum of PE deals in the first half of 2022 was such that it touched an all-time high of $27.6 billion. It surley looks like the global investors still look at the Indian start-up ecosystem as engine of its future growth. Hence, unlike the portfolio flows, the PE funds are more than willing to bet deep ito the future in the Indian start-up ecosystem.

There is a fundamental difference to understand here. While the FPI flows come via the portfolio route, private equity flows come through the foreign direct investment (FDI) route. In comparison to the FPI route, the FDI route is more stable source of funds and even from a macro perspective, it is more conducive to the long term interests of India’s balance of payment flows. According to data compiled by the IVCA (Indian Venture Capital Association), the first half of 2022 saw 15.5% growth in big ticket PE investments.

The growth has manifested during the first half in deal value and also in the number of deals. Between January 2022 and June 2022, a total of 713 deals were signed by PE funds and VC funds in the form of term sheets as compared to just about 526 deals in the corresponding period last year. Obviously, for the PE funds, the long term growth promise of India looks strong and alluring. Government reforms in this direction have also been favourable for start-up ecosystem and also for macro stability overall.

Th biggest deal during the first half was the $1.8 billion that Viacom India received from Bodhi Tree Systems. While Viacom India is part of the medi property of the Reliance group,k Bodhi Tree Systems belongs to the media tycoon Rupert Murdoch of Australia. The other big deals were the buyout of IGT Solutions by Baring Asia and Bain Capital’s strategic investment in IIFL Wealth. In addition, Welspun got $775 million from Actis and Dailyhunt got $805 million from investors including Ontario Teachers’ Pension Fund and CPPIB.

What do we infer from this enthusiasm that the PE funds have shown for the India story? There are broadly 3 takeaways from the flow numbers. Firstly, there is still a solid appetite for quality Indian start-ups, all the concerns over digital valuations notwithstanding. Secondly, companies that avoided the IPO route may actually be better off as they have seen less of value depletion. Lastly, the long term private equity players appear to be in a much better position to understand and invest in these rather deep and futuristic stories.