Armed with significant dry powder, investors are reviving their bets on India’s high-growth sectors, according to Nitish Poddar, Partner and India Leader – Private equity, KPMG in India.
Interest in India has remained strong in recent years, with the country accounting for nearly 20% of private equity deals since 2019. In the first half of 2024, India’s private equity deal volume rose by 20% year-on-year, reversing a downtrend that began in the second half of 2021, according to KPMG’s Asia Pacific Private Equity report released in December.
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Investment values also showed positive movement, reaching $12.4 billion in the first half of 2024—up 14% from the previous six months—though still among the lowest levels seen over the past five years. The report further noted a steady decline in total deal values since peaking at $43.5 billion in second half of 2021, suggesting that valuations are gradually becoming more rational.
Sector spotlight
India’s consumer market remains a key draw for private equity investments, benefiting from robust domestic demand and a growing middle class.
“Over the last year, we are seeing a lot of action in the consumer section which is one of the biggest beneficiaries of domestic consumption,” Poddar told Mint in an interview. “Other sectors such as life sciences & healthcare – from a delivery and production perspective continue to be exciting spaces for investors.”
Within manufacturing and industrials, there is a lot of interest within sub-segments such as auto components. “Those companies that are built on high-end precision manufacturing in India – though there are far and few in the country attract significant investor interest,” Poddar said.
“Especially those companies where there is a mix of domestic and export play makes it a sweeter proposition for private equity firms,” he said. Poddar added that such companies have lesser risk exposure due to diversification across geographies.
The rising tide of succession planning among family-owned businesses is also unlocking fresh opportunities for private equity firms to invest in or acquire well-established companies.
This trend is further driven by conglomerates divesting non-core businesses to streamline operations and focus on their primary verticals, Poddar said.
Mint has earlier reported that major companies such as Hindustan Unilever, Adani Enterprises, Bharti Enterprises, L&T, and Tata Group have initiated such moves over the past year, creating fertile ground for private equity investments.
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“While there are newer businesses emerging with unique propositions, not all of them will have an exit opportunity through a strategic buyer or be able to list in the stock markets at that scale. This opens another channel for private equity firms to come in and disrupt,” said Poddar.
Additionally, generational shifts in family-owned businesses are opening more doors for investors. Many second- and third-generation heirs are opting not to continue in traditional industries, while succession planning challenges prompt families to seek external capital and expertise.
As more founders from established companies retire, there is a growing willingness to hand over control to investors capable of scaling the business. “This underscores a more mature shift in the Indian promoter mindset where they think more about the growth of the business rather than myopically looking at it as a wealth creation activity,” he added.
Exit opportunities
Global investors remain optimistic about India, driven by better exit opportunities and a robust public market. The successful public offerings of several new-age startups—such as Swiggy, Unicommerce, Blackbuck, FirstCry, and Ola Electric—over the past year have fuelled expectations that the IPO momentum will continue.
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Both venture capital and private equity investors have reaped substantial returns from these initial public offerings (IPOs). For instance, Kedaara Capital achieved windfall gains from Vishal Megamart’s IPO in December, while Swiggy’s public offering delivered a remarkable 35x return for Accel.
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Beyond IPOs, investors are exploring diverse exit options, including secondary funds, share buybacks, trade sales, and continuation funds. These mechanisms provide flexibility and ensure liquidity for investors while extending opportunities for portfolio companies to grow.
Several firms, including Lightbox, Multiples, and India Quotient, have explored continuation funds to remain invested in high-performing companies as their main fund cycles near completion. This strategy also allows their backers a structured exit, as reported by Mint.
“As more sophisticated exit opportunities open up, I only anticipate more enthusiasm to invest in the country,” Poddar concluded.
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