‘Investments in startups, others may perk up as economy likely to hit pre-Covid level in March quarter’

The Covid-19 pandemic has arguably upended every part of life across the globe. However, the India growth story, as the Prime Minister has reiterated, seems to be getting its sheen back as a host of India-focused investors spruce up their war chest, taking advantage of the ultra-low interest rates trending the world over. With the economy on a recovery path, the deal street is expected to see renewed action by the end of the current fiscal. The signs of this renewed rigour are already showing as September marked an upward momentum after months of diving to all-time lows following the government’s announcement of the nation-wide lockdown in late March. The quarter saw some of the largest private equity (PE) deals ever done in India though it is confined to sectors that are leading the recovery wave.

According to a report by global consultant Ernst & Young (EY), leading the pack are sectors such as healthcare and technology which have seen a marked improvement in demand. Going by the report, telecom was the top sector with $10 billion invested across 13 deals, that is, 10 times’ increase from January to September 2020 compared to the same period the previous year. These are mainly attributed to investments in Jio Platforms. Following this sector are the pharmaceutical, education, retail, and consumer sectors with $1.9 billion investments each. Although these sectors have a varying number of deals, they are all marked by a year-on-year increase between 2.5 to 5 times respectively.

Also read: Cars24 is India’s latest unicorn with $200 million funding round led by DST Global

The pandemic has also thrown open new opportunities for private equity investors for potential portfolios at attractive valuations. Even as many companies have given up their office space or stripped down to only essential square footage, it is not entirely unlikely for the commercial real estate to see renewed interest from cash-rich private investors as the lockdown relaxes nation-wide. Additionally, RBI’s decision to give start-ups the ‘priority sector lending’ tag also bodes well for increased private investments into promising ventures. This is because investors sensing opportunities coming up at the right valuations would snap up the chance to be part of the India growth story.

However, for the first time since 2017, venture investment has literally collapsed with a number of deals falling below the 100-mark at a tad over 90 in September. This is because the existing investors are said to be taking stock of their portfolio firms after the pandemic changed the business outlook – lock, stock, and barrel.

Nevertheless, good news amidst a glut of negativities is the fact that most of the India-focused funds have raised capital in the last quarter, taking full advantage of the ultra-low interest rates. Though they have not yet deployed their dry powder, they are scouting for attractive investment options, ready to go, once the economy comes out of the woods. Technology-driven companies with a focus on a contactless way of doing business will be in great demand in the next phase of the investment cycle. Investors may also take aim at agri-focused start-ups as the new farm laws are expected to create tremendous demand for farm-focused enterprises.  In short, despite the challenges posed by the pandemic, we have reason to believe that it is not all bad news for the economy. Chaos breeds opportunity after all!

Vinayak Burman is the Managing & Founder Partner of Vertices Partners. Views expressed are the author’s own.