PE/VC investments in May rise 42% to $5.3 bn; dip 29% month-on-month

While investment by private equity and venture capital players continued to rise in the month of May on a year-on-year (y-o-y) basis, on a month-on-month basis the pressure of global uncertainties was evident.

The latest report by IVCA-EY said that the PE/VC investments in May 2022 were $5.3 billion, 42 per cent higher than the value recorded in May 2021 ($3.8 billion) and 29 per cent lower than investments in April 2022 ($7.5 billion). May 2022 recorded 109 deals, 65 per cent higher than May 2021 (66 deals) and 12 per cent lower than deals in April 2022 (117 deals). About 68 per cent of the total PE/VC investments in May 2022 were pure-play investments (excluding real estate and infrastructure sectors) compared to 67 per cent in May 2021 and 79 per cent in April 2022.

Fundraises were the only positive with an upward trend. May 2022 recorded a total fundraise of $668 million across 5 funds compared to $154 million raised in May 2021 by three funds. The largest fundraise in May 2022 was by Jungle Ventures which raised its fourth India dedicated fund at $600 million.

Vivek Soni, partner and national leader, Private Equity Services at EY said, “Despite the liquidity tightening by the US and Indian Central Banks, the flow of PE/VC capital into India has continued with year-to-date investments worth $28.8 billion, 35% higher y-o-y. The large amounts of dry powder amassed by global PE/ VC funds are finding their way into India which remains one of the few bright spots of growth.”

Real estate and infrastructure sector investments took the top spot in May 2022, recording $1.7 billion in investments, after having been the laggards for many months as PE/VC funds focused capital allocation towards high growth sectors of e-commerce and technology throughout 2021.

The largest deal in May 2022 saw Adani Group-controlled Mumbai International Airport raise $750 million in debt from Apollo Global, followed by Bain Capital and Ivanhoe Cambridge (a unit of CDPQ) announcing an investment of $667 million in a JV with the Lodha group to set up Lodha Logistics Platform, a platform of logistics and light industrial parks, and in-city fulfillment centres.

The financial services sector with $5.3 billion in investments till date, is the top sector for PE/VC investors, a change from 2021 when e-commerce and technology were the sectors that saw maximum PE/VC investment activity. This has been driven by large investments in the fintech and payments space which account for 59% by value and 75% by volume of all deals in the sector in 2022.

While NBFC was the most preferred sub-sector for PE/VC investments in the first half of the last decade, of late the balance has shifted heavily on the side of fintech and payments. Investments in fintech and payments were at an all-time high of $7.4 billion and account for 63 per cent of the investments in the financial services sector in 2021 versus an average of 30% in the previous years.

In the absence of large strategic and secondary deals, PE/VC exits remained subdued at $400 million. However, PE-backed IPOs made a comeback with 5 IPOs in May 2022.

“While overall macro remains positive, uncertainty abounds. Monetary policy tightening continues to remain a key sensitivity affecting capital flows into India. Other downside risks that can impact growth expectations, business risk premium and PE/ VC investment activity include rising inflation, spike in oil prices, dollar appreciation vs Indian Rupee, rising Indian interest rates and any potential resurgence in Covid-19 in the country,” said Soni.