India witnessed a funding slowdown in 2022, with a 31% fall in PE/VC investments to November 2022 compared to those in YTD 2021. PE/VC firms invested US$46,786 million in 1,260 investments in 1,181 companies in 2022, compared to US$65,000 million in 1,362 deals in 2021. Despite this, 2022 turned out to be the second-best year for PE/VC investments, and towards the end of the year, PE/VC investments picked up pace.
In addition, with global dry powder reaching almost US$590 billion and India-dedicated fundraising being at a high of US$15.7 billion, there is availability of risk capital to be deployed in India.
In terms of control and buyout deals, PE funds sealed 36 deals in 2022 with a total announced value of US$7,652 million across 28 deals. Start-ups witnessed the highest number of deals among deal segments in 2022, followed by growth deals. It is pertinent to note that the annual invested capital is still up 50% from four years ago, showcasing the maturity of the start-up ecosystem. This year, sectors such as financial services, infrastructure, real estate, technology, and e-commerce saw the highest investor interest. The top sub-segments that attracted funding were SaaS and FinTech, contributing to 27% of the total funding in value terms.
Within the Asia region, PE deal activity declined in China, and with the tightening of the Chinese market to prevent foreign investment, India witnessed an inflow of deals. US PE firms continued to be the major investors in the Indian market, particularly in the tech sector, which remains ripe for opportunities.
There are exciting long-term opportunities centered around businesses driven by domestic consumption, digital transformation, sustainability, and healthcare in India. High-growth sectors include enterprise software, fintech, consumer, and healthcare, where consumer preferences are at the center of the business model.
There is a focus on investing in businesses that offer differentiated services from India to the world. This includes technology and technology-enabled services and outsourcing in the pharma sector. Almost $3.5 billion to $4.0 billion of private equity investment is expected to flow into the real estate sector in 2023.
As private institutional capital takes on a more prominent role in the Indian economy, the industry faces some important challenges, including tightening capital conditions, increasing competition in the domestic markets, and the need for accountability on corporate governance.