PE-VC dealmaking may remain tempered in 2024 as global macros stabilise: Bain & Co

India PE-VC dealmaking expected to remain tempered in 2024 amid global macroeconomic stabilization: Bain & Co

After a decline of 35 percent in 2023, Indian private equity and venture capital (PE-VC) dealmaking is expected to remain tempered in 2024 as global macroeconomic situation moves towards stabilisation, according to global consulting firm Bain & Company’s ‘India Private Equity Report 2024’ that was released on May 9 in collaboration with the Indian Venture and Alternate Capital Association.

Mirroring the global trend, Indian private equity and venture capital (PE-VC) investment went down around 35 percent from $62 billion in 2022 to almost $39 billion in 2023, returning to the pre-Covid levels.

Traditional sectors such as infrastructure, healthcare, advanced manufacturing, and renewable energy are likely to attract outsized investments in India in 2024, as per the report. This is due to positive fundamentals, supportive policy environment, such as production linked incentives and tax incentives, and the emergence of scale assets across multiple sub-segments.

“While India PE-VC dealmaking is expected to remain somewhat cautious in 2024, India’s robust fundamentals, coupled with a supportive policy environment, will continue to draw strong interest from investors, especially in traditional sectors like manufacturing, which benefits from global macro trends like supply chain diversification,” said Sai Deo, partner at Bain & Company.

Strong deal activity is expected in healthcare and advanced manufacturing across sub-segments in 2024, the report said. Healthcare is likely to see continued deal activity across multi-speciality and single-speciality providers. Within advanced manufacturing, packaging, electronics, and EVs are likely to see an uptick in deal activity as scale packaging assets in globally competitive niches are likely to come to the market, electronics manufacturing expands rapidly with government support, and EV penetration is on the rise.

Global supply chain diversification is also likely to benefit Indian manufacturers in select, export-oriented sectors such as electronics, pharma (especially in APIs and CDMOs), and chemicals (speciality chemiscals and agrochemicals). These sectors boast globally competitive Indian scale players and robust government support, the report said.

“India remains a long-term secular investment destination, given rapid growth, a stable economic landscape with fiscal and monetary discipline and supportive government policies in key sectors such as pharma, manufacturing and renewable energy,” said Gustaf Ericson, associate partner at Bain & Company.

“Manufacturing is an attractive sector for investors given a robust sector growth outlook, helped in part by government support through PLIs and increased global supply chain diversification - notably in areas such as electronics and chemicals. We expect strong deal flow in manufacturing in 2024 in areas such as packaging, electronics and EVs, driven by (1) scale companies expanding into new segments (for example, EMS players into mobile phones and IT hardware) or into new value chain capabilities like ODM, and (2) the opportunity to create build and buy in areas such as flexible plastic packaging,” Ericson added.

Report Card for 2023 

While overall investment activity declined by 35 percent in 2023, PE investments displayed comparative resilience, with a 18 percent decline vs. VC activity, as large-scale dealmaking persisted for high-quality assets. 2023 saw a fundamental paradigm shift towards value, focussing on traditional industries like healthcare, energy, manufacturing, the report said.

Traditional sectors showed resilience and gained share, comprising  almost 75 percent of PE-VC investments in 2023, compared to 60 percent in 2022, as investors continue to support businesses with mature operating economics and secular growth characteristics.

Healthcare investments reached a record $5.5 billion in 2023, fuelled by ongoing consolidation in multi-speciality providers and the emergence of scale single-specialty assets with attractive business profiles.

“Despite the decline in PE-VC investments on the back of a global slowdown, India continues to remain a bright spot in Asia-Pacific (APAC) as India’s share of APAC PE-VC investment increased from 15 percent in 2018 to 20 percent in 2023. Investor confidence in the country's robust growth story and strong fundamentals remains firm, with funds actively diversifying into new sectors or asset classes outside core areas and continuing to scale their India teams,” said Prabhav Kashyap, partner at Bain & Company.

The year 2023 was also significant for Indian exits with the exit value soaring 15 percent to $29 billion, alongside a rise in exit volumes from 210 to 340. This was driven primarily by public market sales (notably block trades) which comprised half of exits by value, benefitting from an increasingly deep Indian public market, which outperformed those of most major economies, with a significant increase in domestic investor participation.

“Public markets have remained buoyant in 2024 and we expect this to remain a viable exit channel, however, there has also been notable private equity deal activity - including for scale deals - so we expect the Indian PE market to offer multiple paths to exit,” said Ericson.