After being buoyant for the last seven months even amid global headwinds, private equity and venture capital investments slipped to 19-month low in August.
Investments by this sophisticated investors slipped 70-90 per cent last month across sectors as the cost of capital increased and competitive pressure witnessed last year eased.
PE/VC investment in India plunged 83 per cent year-on-year to $2.2 billion ($11 billion) across 83 deals last month, according to the IVCA-EY monthly round-up. It is down 43 per cent compared to $4.1 billion investment made in July.
India’s case as an investment destination was strengthened by fears of the US already being in a recession and Europe too being on the brink of one. Nonetheless, in the connected global economy, India is feeling pressure due to the falling rupee and rise in inflation.
The rising cost of capital is making fund-raising difficult for many businesses and only those with a strong growth pathway and sustainable unit economics are seeing investor interest.
Deals and exits
Interestingly, private equity investors exited from 25 deals worth $3.1 billion, the highest so far this year, it added. This is significantly higher than $322-million exit from nine deals recorded in July.
A few large open market exits saw KKR sell its 28 per cent stake in Max Health for $1.2 billion and Blackstone sell its 14 per cent stake in Sona BLW for $509 million.
Only five large deals of $972 million was executed last month compared to 18 deals worth $9.2 billion logged in the same period last year and seven deals valued at $3.3 billion in July. Deals worth more $100 million are defined as large.
Vivek Soni, Partner (Private Equity Services), EY, said investors are being more circumspect in making investment decisions and taking longer to close deals as most sectors recorded a sharp decline in PE/VC investments in August.
“We expect PE/VC investment activity to remain sluggish in the near term till valuation expectations correct,” he said. However, he added the healthcare sector bucked the trend to record nearly five times increase in PE/VC investments as it has become the favourite investors in recent years.
This sector received almost $9.5 billion investment since 2017 and exit performance was about $5.3 billion in the same period.