PE, VC investments decline 23% in July-Sept quarter: EY India report

Private equity (PE) and venture capital (VC) investments during the quarter ended September have weakened compared to the same quarter of the previous year. At $6.7 billion, quarterly PE/VC investments declined by 23 per cent on a year-on-year basis in the third quarter of the year, compared to $8.7 billion during the same period last year.    

This is also the most under-performing quarter in 2018, both in terms of investments and exits, according the EY India Private Equity Deal Tracker. The decline in investments was despite a 29 per cent increase in the number of deals to 178 over the 138 deals during the same period of last year. 

The decline in investments was mainly on account of fewer large deals (with a value of more than $100 million) during the quarter ended September 2018. During the quarter, 13 large deals were recorded, aggregating $3.9 billion, compared to 18 such deals in the same quarter last year, aggregating $7 billion. The second quarter of this calender year recorded 25 large deals aggregating $6.1 billion, while the first quarter ended March 31, 2018, recorded 13 large deals, aggregating $5.7 billion, it added.
 

Excluding the Flipkart deal, at $1.3 billion, exits declined by 71 per cent compared to the same quarter last year. However, the PE/VC investments for the whole year till date are on track to surpass last year's investments by recording $22.2 billion, higher by 17.4 per cent. Given some large deals in the pipeline, India is on the track to surpass the previous year high, it added. 

Vivek Soni, partner and national leader (private equity services), EY India, said, "PE/VC deal activity was strong in the first half of 2018. However, Q3 data and discussions with PE/VCs suggest that investors are turning cautious. Macro headwinds like rising crude oil prices, depreciating rupee, talk of trade wars, etc, have increased uncertainty. Liquidity-related issues attributed to the NBFC sector and the pronounced sell down in listed financial services stocks have also weakened the sentiment."
 

It is possible that the upcoming 2019 general elections, the slowly evolving NPA situation and the developing situation around select NBFCs may influence investors to consider taking a wait-and-watch approach in the short-term, he added. 

However, with record levels of PE/VC amounts (over $40 billion) awaiting deployment in India and the long-term secular growth forecast of around seven per cent, EY India remain positive on the medium- to long-term prospects of the Indian PE/VC industry. In the last quarter of 2018, there is a pipeline of large deals awaiting regulatory approval, which if closed successfully, could lead to another record year for Indian PE/VC industry for investments as well as exits, he added.  

E-commerce, real estate, financial services and healthcare, which traditionally receive maximum PE/VC investments, recorded a quarterly investment declines in excess of 50 per cent on a Y-o-Y basis. Power and utilities, logistics and technology were the few sectors to show improvement in investments during the quarter compared to last year. 
 

In terms of exits, volatility in the markets continued to impact open market deal activity and PE-backed initial public offers (IPO). E-commerce recorded the highest value of exits during the quarter with $16 billion across three deals, mainly on account of the large $16-billion deal, followed by financial services at $491 million across seven deals.  

The quarter witnessed an increase of 17 per cent in fundraising at $2.6 billion compared to the same period last year. Sequoia's $695-million sixth fund and True North's $600-million sixth fund were the largest fund raises during the quarter. New fundraising plans announced in the quarter stood at $4.3 billion, it added.