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Emerging niche opportunities will continue to attract investors in the next 12 months

Mumbai, NFAPost: As much as 90% of private equity (PE) and venture capital (VC) investors envisage a decline in fund-raising
activities over the next 6 to 12 months because of the Covid-19 pandemic, a CRISIL Research survey showed.

That would cut short the strong growth spell PE-VC investments have seen in India in the recent past. The refrain is it will be downhill from here this fiscal, with some sustained interest in business strategies at lower valuations and sectors largely unaffected, or benefiting, from the pandemic.

Though the market is sitting on sufficient un-invested capital, or ‘dry powder,’ good investment opportunities are seen difficult to find in the current environment. About 58% surveyed expect investment value to decline over the coming 12 months. About half of them see a moderate recovery thereafter, while a fifth foresee a strong recovery.

Two-thirds of investors see mergers and acquisitions (M&As) rising over the next 6-12 months, extending up to the next 1-2 years, and more than three-fourths see a rise in M&A activity in the 1-2 years, compared with 2019.

CRISIL Research Director Rahul Prithiani said with exit options limited because of weak capital market and low interest in secondary transactions from other funds, investors would look at M&As as a strategic route to check out.

“M&A transactions with stronger players would be the more-likely option subject to demand contours and growth opportunities, extent of synergy, and availability of capital for acquisition,” said CRISIL Research Director Rahul Prithiani.

Investment decisions are expected to be delayed given the due-diligence criticality and including new parameters for evaluation in the post-pandemic world.

Investors expect to focus on segments minimally impacted by the pandemic or those with promising opportunities,
such as technology, e-commerce and healthcare. Over a longer term, these segments would see positive structural
changes, which will drive stronger growth due to changing consumer behaviour.

E-commerce, technology, information technology and IT-enabled services, financial services, and lately, infrastructure and real estate have dominated the private investment market. Healthcare is a key sector that will garner even more interest and attention post pandemic.

CRISIL Research Associate Director Anjali Nathwani said overall, while wait-and-watch would be the approach, focus will be on niche opportunities and lower valuations in few sectors with good growth prospects. What’s gratifying is that over 60% of the investors have expressed confidence that India will continue to attract international funds within the Asia-Pacific region over the long run.”

Baring the fund raising spree by Reliance Industries for its Jio Platforms – including ~$9.5 billion from PE funds alone – the first quarter of fiscal 2021 saw very low traction. PE-VC investments by value was down 60-70% in the first quarter (on-year), excluding outlier Jio Platforms.

PE-VC investments have grown from ~$15 billion in fiscal 2015 to ~$40 billion in fiscal 2020. Fiscal 2020 investments figures would have been even higher, had February and March not been pandemic-hit. Investments declined 45% in February and 70% in March, over the average monthly investments in the past three fiscals.

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