India’s equity markets have seen a phenomenal run-up in 2021 and are trading at all-time high levels. During the first half of the year, the primary markets hogged the limelight with many companies selling shares to the public. Meanwhile, many start-ups became unicorns, those with a valuation of at least $1 billion, as venture capital (VC) and private equity (PE) investments continued to pour in.
Did unlisted companies or listed firms get more investments in the first half of 2021? That’s not an easy question to answer with available data because some of the private equity investments go into listed companies and some get counted in foreign portfolio investments. Still it appears that when it comes to equity financing, private companies got a lot more money when compared to public companies.
Chart 1 shows that VC and PE investments far exceeded the amount invested by foreign portfolio investors (FPIs) in public equities. According to data from Grant Thornton Bharat and KPMG, VC and PE financing reached record levels in India in the first half of 2021. Note, of course, that some of these VCs and PEs are wholly local.
Were FPIs as gung-ho about IPOs as popular sentiment would have it? It would seem so. As chart 2 shows, FPI investment in the primary market amounted to $3 billion, which is a significant portion of the $5.2 billion raised by companies through IPOs.
Where did the FPI money go? Chart 3, which has data from National Securities Depository Ltd has the answers. FPIs invested the most in insurance, automobiles, household & personal products, realty, and telecom services sectors – fairly traditional sectors.
The situation is different when it comes to VC/PE investments. Chart 4 shows that e-commerce, fintech and logistics sectors have remained the venture capital favourites for the investment in first half of 2021.
When it comes to sourcing equity financing, private markets seem to have an edge. As this Moneycontrol Pro article noted: “India has received more foreign inflows into private equity/venture capital (including in real estate and infrastructure) than in listed public equities. While the private and alternative investing space is larger, it is beset with problems of liquidity, governance, and access. That also means that India’s public markets will see increased IPOs as PE/VCs look for exits.”
Chart 5 has the details.
Thus, in the second half of the year, we are seeing many unicorns such as Paytm and Policybazaar filing for initial public offers.
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