5 minute read 6 Mar 2024
PE/VC Deals and Transactions

How PE/VC industry in 2023 navigated challenging times with resilience

By Vivek Soni

EY India Private Equity Leader

Strategic thinker and leader. More than 22 years of experience in M&A advisory, Private Equity investing, structured finance and running a PE portfolio company. Passionate biker and avid traveler.

5 minute read 6 Mar 2024

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  • PE/VC agenda India Trend Book 2024

The record volume of exits positions India as an attractive destination for investors.

In brief

  • 2023 records US$49.8 billion PE/VC investments across 853 deals, a 11% drop y-o-y.
  • Growth investments contributed most to the PE/VC investments in 2023, with US$17.1 billion invested across 147 deals.
  • Infrastructure emerged as the leading sector, attracting an investment of US$11.6 billion across 57 deals.
  • PE/VC exits recorded the highest ever volume, totaling 303 deals to record exits worth US$24.8 billion. 

After a challenging 2022, the Private Equity and Venture Capital (PE/VC) landscape in 2023 remained turbulent. The year observed notable shifts and adaptations in investment strategies, a blend of sectoral re-allocations, strong build-up in dry powder, the downturn in the startup segment. The trends indicate the constantly evolving strategies adapted by the funds in a response to every changing market dynamic.

PE/VC investments recorded a second consecutive year of decline in 2023. The dollar value of cumulative PE/VC investments fell by 11% y-o-y to $49.8 billion, primarily due to a 33% decline in overall deal volume – of which the primary contributor was the startup segment, which saw a sharp fall of 42% y-o-y in the number of deals and a 53% drop in dollar value of investments. As the share of startup in PE/VC investments fell to 17%, it also lost the title of being the largest segment, which it held since 2021. In 2023, we saw a trend similar to 2022 wherein the first half of the year saw the heightened activities (US$27.5 billion) which subsequently declined in the second half (US$22.2 billion). The PE/VC investments in infrastructure and real estate asset class recorded a y-o-y growth of 23% in 2023 (US$19.6 billion across 112 deals), and this helped to offset the significant fall in pure play PE investments which saw a 25% decline y-o-y. 

The year 2023 observed a prominent uptrend across some sectors. Infrastructure and real estate emerged as the leading sectors. Real estate, healthcare and industrial products recorded all-time high investments with an impressive growth of 15%, 97%, and an 299% respectively. However, the traditionally favored sectors by PE such as financial services, technology and e-commerce faced a downturn recording a de-growth of 39%, 39% and 55% respectively. This year, 10 sectors recorded over US$1 billion investments (vs. 13 sectors in the previous year). 

PE/VC exits, in contrast, staged a remarkable rebound in 2023, recording an impressive US$24.8 billion, which was also complemented by the highest ever number of exits deals (303 deals in 2023 compared to 248 deals in 2022). Open market exits, which made the historic high, were the largest exits segment in 2023, with exits worth US$12.8 billion across 131 deals, a growth of 94% y-o-y. Also, the IPO market demonstrated considerable strength with 30 PE-backed IPOs in 2023. PE/VC exit activity was observed mainly in financial services, e-commerce, healthcare, technology, real estate, infrastructure, and automotive sectors, each witnessing exits over US$1 billion.

The bid-ask spread between buyers and sellers on valuation multiples was one of the major hurdles, impacting the number of transactions closed. However, India’s growth story, global competitiveness, and elevated levels of dry powder are expected to help to narrow the gap between investor valuations and seller expectation and the long-term outlook on resilient India’s PE/VC ecosystem remains positive. Despite the global headwinds, the underlying strength of India's economy, along with the ongoing reforms, position the country as a beacon of opportunity for investors seeking long-term value creation. 

Summary

In the coming years, partnerships between traditional entities and investors such as sovereign wealth funds (SWFs), pension funds, and specialized secondaries investors, alongside technological advancements, and evolving consumer behavior, will continue to redefine the landscape of the PE/VC ecosystem. The future of India’s PE/VC sector remains resilient, and it is poised for growth, supported by strong fundamentals and a favorable demographic dividend. The record volume of exits in 2023, combined with ongoing reforms and innovations, positions India as an attractive destination for investors seeking to create long-term value.

About this article

By Vivek Soni

EY India Private Equity Leader

Strategic thinker and leader. More than 22 years of experience in M&A advisory, Private Equity investing, structured finance and running a PE portfolio company. Passionate biker and avid traveler.