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India-focused investors' fundraising in Jan-Aug sees 109% annual growth

T E Narasimhan/Chennai 14 Sep 18 | 08:00 AM

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Fundsraising by India-focused investors — both intended and actual — in the first eight months of this calendar year has increased by more than 100 per cent to $5.32 billion from $2.55 billion during the same period last year. In terms of volume, the number of deals during the January-August period rose by 48 per cent to 37 from 25 last year.

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These investors in August announced fundraising plans worth $3 billion, which was 50 per cent higher than the $2 billion raised in nine deals the previous month, according to the latest EY report.

The largest fundraising during the month, according to EY’s Private Equity Monthly Deal Tracker, was Sequoia’s $695-million deal for its sixth fund focusing on early- and growth-stage investments in the technology, consumer and healthcare sectors. Besides, True North raised around $600 million for a sector-agnostic fund, and Matrix Partners India raised $300 million for its third fund focusing on consumer technology.

Among others, AION Capital, US-based Apollo Global Management’s fund in a strategic partnership with ICICI Venture, announced raising $1 billion in a sector-agnostic fund. And, UK-based private equity (PE) firm Greater Pacific Capital said it was raising $700 million for a sector-agnostic fund.

As of the end of August, investor sentiment towards India remained strong, with funds adding to their dry powder, according to Vivek Soni, partner and national leader (private equity services) at EY. "The $2 billion raised during the month, in addition to the $40 billion available for investment in India, is an example of the strong sentiment," Soni said.

Citing the example of marquee global investors like Berkshire Hathaway, which recently announced an investment of $300-$400 million in Paytm, Soni said the Indian PE/VC (private equity-venture capital) industry appears to have come of age.

As for investor exits, August 2018 saw 18 of them, totalling $830 million, almost double the amount seen in July 2018. On a year-on-year basis, however, the overall value in August 2018 was 61 per cent lower, mainly on account of a few large exits that had taken place in the same month of 2017. Tiger Global’s $800-million exit from Flipkart, Bain Capital and GIC’s $294-million partial exit from Genpact and IFC’s $246-million exit from Tikona Digital were some of the big-ticket exits in August 2017.

Exits have faced some headwinds lately, especially with a volatility in broader markets. Given the rupee’s depreciation against the dollar earlier this month, EY sees deal closures getting further delayed, as investors turn cautious.

However, on the brighter side, the successful closure of the Walmart-Flipkart deal in the first week of September is expected to infuse some vigour into the Indian PE/VC industry, especially with regard to the early-stage funding eco-system. Thanks to this $16-billion deal, the overall value of 2018 exits in dollar terms has reached an all-time high of over $23 billion.

According to EY’s Soni, particularly with one quarter still left in this calendar year, the value of exits in 2018 should be twice as much as that in 2017.

In terms of investments in the Indian PE-VC ecosystem as well, August 2018 saw a steep decline when compared with the same month last year. A total of $1.6 billion was invested in 50 deals during the month. This was on a par with July 2018, when 68 such deals had taken place, but 71 per cent lower than the $5.42 billion reported to have been invested in 50 deals in August 2017. The significant year-on-year decline was mainly on account of two mega deals recorded in the same month of 2017 – Softbank’s $2.5-billion investment in Flipkart and GIC’s $1.4-billion investment in DLF Cyber City.

Three out of the top five PE investments in August 2018 were buyouts. The list was topped by KKR’s $530-million buyout of a 60 per cent stake in Ramky Enviro Engineers Ltd.

Padmanabh Sinha, managing partner of Tata Opportunities Fund and chairman of the Indian Private Equity and Venture Capital Association (IVCA), says the year has seen a general pick-up in investments. The real estate, infrastructure and a few others, for instance, together received investments to the tune of $24 billion. Fundraising, at $3-4 billion for India-specific funds last year, had increased to $5-6 billion. 

"Structurally, the industry has grown in the past few years and I think the trend will continue, hopefully. It is a long-drawn process and will take time. Interest in Indian funds has generally gone up in the past three years," he said, adding that there had not been anything exceptional in recent months to influence fundraising activities.

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